States promise school funding to those closed by COVID-19

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Municipal bond analysts are closely monitoring the potential impacts on K-12 school bonds of COVID-19-related school closures.

Given that the closure announcements began late last week and government actions are changing hourly, Moody’s Investors Service spokesman David Jacobsen said in an interview Tuesday that included three Moody’s analysts, the “the situation is dynamic, and whatever was said today, could be different tomorrow.”

The major population centers on the coasts, where the first deaths were reported, were also the first to take action to halt community activity — and to close schools late last week. Initially, schools were to be closed until the end of March or through the first two weeks of April. But as of midweek, some including California were expected to remain shut through the school year, not reopening until the fall.

“Don’t anticipate schools are going to open up in a week. Please don’t anticipate in a few weeks,” California Gov. Gavin Newsom said Tuesday. “I would plan, and assume, that it’s unlikely that many of these schools — few, if any — will open before the summer break.”

On Tuesday, Oregon Gov. Kate Brown extended school closures to April 28.

“I do not take the decision to extend school closures lightly,” Brown said. “This will have real impacts on Oregon’s students, parents, and educators. But we must act now to flatten the curve and slow the rate of COVID-19 transmission in Oregon, otherwise we face a higher strain on our medical system and greater loss of life to this disease.”

Kansas Gov. Laura Kelly canceled school for the year Tuesday.

By Wednesday night, 39 states had canceled school, according to Education Week.

Earlier this week, the tone was optimistic regarding funding from the states, however.

California Gov. Gavin Newsom said Tuesday that nearly 99% of the state's schools had closed for the year amid the outbreak.

Many state officials around the country have said they would fund missed days as if students were in attendance, Blake Yocom, an S&P Global Ratings director and lead analyst, said Wednesday.

That was the case in Illinois, where Yocom is located, he said.

Each state differs in how they fund schools, but most have some dependence on local property taxes coupled with money from the state and federal government based on per-pupil attendance.

While school funding varies widely by state, most school districts are heavily reliant on the states for funding based on per-pupil counts on average daily attendance, or next year’s and last year’s attendance, Yocom said.

In Illinois, the State Board of Education has said funding will continue regardless of the days students will miss because Gov. J.B. Pritzker mandated that schools close, which is a welcomed sign of relief for these districts, not having to worry about state funding, Yocom said.

In California, Newsom left it up to individual school districts to make the choice whether to stay open or close, but by Tuesday he said nearly 99% of schools had closed.

California lawmakers approved $1 billion in funding Monday for efforts related to containing the outbreak. The bill appropriates $500 million for emergency response from the state’s general fund with an additional $500 million available, if needed. Newsom immediately signed the bills Monday, the only action taken by the Legislature before the two houses announced the suspension of legislative action until April 13.

Moody's viewed the actions taken by California as positive, said analyst Helen Cregger.

“It was not entirely unanticipated given the state’s historical practice of keeping districts whole when impacted by natural disasters,” she said.

Though most states don’t have $20 billion in reserves like California does, most have benefited from the long economic expansion, and have the resources to support schools, according to analysts.

“The connection between the states and their desire to support education is clear,” said Lenny Jones, a Moody’s director. “The states are in a better position to handle this because of how well the states have been doing over the last eight or nine years.”

Moody’s analysts have been stress testing credits against a recession, which has been anticipated for a few years, Jones said.

“Our primary concern is about what occurs should the virus propel us into some kind of a recession,” Jones said. “We have been concerned about the possibility of recession for a while. This is the longest expansion in some time. We had reports looking at recession preparedness even before the coronavirus.”

Meanwhile, school districts in California, and other states with a significant number of students who qualify for free lunches, will continue to provide meals while the schools are closed.

Some school districts with large numbers of students who qualify for free lunches have summer meal programs, Cregger said. Typically, those programs have provided the meals at a central location, but school districts will be determining how to handle that with social distancing restrictions, Cregger said.

In Oregon, the governor and district officials were also working to insure that students who depend on school lunches would have them available.

Bond elections postponed
In Texas, where 750 school districts and public charter schools were closed at least through the end of March or early April, school bond elections also became an issue.

Texas Gov. Greg Abbott issued a proclamation Wednesday that would allow local elections to be postponed amid the outbreak.

Abbott’s move allows local governments to move elections scheduled for May 2 to Nov. 3, the date of the presidential general election. Local governments are not mandated to follow the proclamation, but Abbott urged them to heed the advice.

"I strongly encourage local election officials to take advantage of these waivers and postpone their elections until November," Abbott said in a statement. "Right now, the state's focus is responding to COVID-19 — including social distancing and avoiding large gatherings. By delaying this election, our local election officials can assist in that effort."

Many school districts and governmental entities are postponing bond elections until November, though some may try to go ahead with May bond elections, said Carol Polumbo, a partner at McCall Parkhurst & Horton, the state’s leading bond counsel.

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