DALLAS – Threatened school closures in several Michigan school districts are a credit negative, according to Moody's Investors Service.

The closures would bring a loss of state aid, Moody's said in a report Monday.

The Michigan School Reform Office has identified 38 underperforming schools in 10 school districts that could be candidates for closings.

Benton Harbor, Bridgeport-Spaulding, East Detroit, Muskegon Heights and River Rouge, districts that have grappled with enrollment losses for years, could see losses ranging from 1% to 13.8% if the districts were to lose 50% of students at the closed schools.

"The school closing process adds unpredictability to an already volatile sector and is credit negative for the affected districts because it makes budgeting for operations challenging and threatens revenues," said Moody's.

Detroit's recently restructured school district could also be impacted, the report said.

The nascent Detroit Public Schools Community District could close up to 16 schools.

Moody's said in the report that DPSCD closure would impact 7,700 students, while noting that the district is scheduled to absorb the nearly 3,700 students from Education Achievement Authority schools that are slated to close in July, and nearly 500 students from one charter school closure. The EAA is a state-run district primarily serving approximately 5,000 Detroit students.

Detroit Public Schools was restructured last year into two entities year as part of a $617 million state bailout of the ailing school district. The overhaul left the old Detroit Public Schools system, which carries an issuer rating of B2 with a stable outlook, intact for the sole purpose of collecting its levies to repay more than $2 billion in obligations.

The new district operates schools and will receive future state aid payments under the restructuring backed by Gov. Rick Snyder and state lawmakers.

"In addition to traditional public schools, a Detroit charter school faces possible closure that would affect 493 students," said Moody's. "The charter school students could shift to other charters or back to public schools.

DPSCD Interim Superintendent Alycia Meriweather said the district does not agree with the methodology, or the approach the School Reform Office is using to determine school closures.

Further, Meriwether said that all of the data collected is entirely from the years the district was under emergency management. DPSCD transitioned to an elected school board at the beginning of January.

Closing schools creates a hardship for students in numerous areas including transportation, safety and the provision of wrap around services," said Meriweather. "As a new district, we are virtually debt free, with a locally elected board and we deserve the right to build on this foundation and work with our parents, educators, administrators and the entire community to improve outcomes for all of our children."

The SRO closures are the result of 2009 legislation that permits the state to close schools that have ranked in the bottom 5% academically for three straight years. This is the first time the SRO has announced potential closures of schools under the legislation.

Senate Education Committee Chairman Phil Pavlov, R-St. Clair Township introduced a repeal bill on the failing schools legislation in early January.

"In the six years this law has existed, it has produced more questions than answers and more controversy than solutions," said Pavlov in a press release.

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