DALLAS – While the Texas economy continues to outperform the nation’s, its government has failed to fix structural problems with its budget, according to a new report from Standard & Poor’s.

“As we have noted for the past five years, we believe that the school finance reforms that the Legislature approved in 2006 created a long-term source of budgetary imbalance and potential liquidity pressure for the state,” said Standard & Poor’s credit analyst Horacio Aldrete-Sanchez in the report released Friday. “In our opinion, the 2012-2013 biennial budget did not materially alter this structural imbalance.”

Standard & Poor’s rates Texas AA-plus with a stable outlook.

The report comes as the state faces a series of lawsuits in state district court in Austin over the constitutionality of the current school funding formula.  The Legislature is expected to deal with the issue in the 2013 session that begins in January.

The Austin-based Center for Public Policy Priorities said that state and local funding for pre-K-12 education in Texas has fallen 11.2% below 2008 levels after adjusting for student growth and inflation. The center’s report is based on research from the Center on Budget and Policy Priorities based in Washington, D.C.

“These cuts have undermined our ability to educate our children and there will be consequences for the Texas economy,” said Chandra Villanueva, education policy analyst at the Center for Public Policy Priorities. “Good schools and an educated workforce foster economic growth, and we are undermining our own recovery by reducing our investment in education.”

Cuts of more than $5 billion imposed last year added to the effect of the 2008 economic crisis, officials said.

“In the first school year (2011-12) of the biennial state budget cycle alone, the funding cuts have forced school districts throughout Texas to lay off more than 25,000 teachers and support staff and to obtain waivers to exceed classroom-size limits,” the Austin center reported.

The budget cuts are even deeper in the second year of the budget cycle, coinciding with the 2012-13 school year, the report finds.

The state’s Republican leaders deny that school funding has been cut. 

“While we expect that the state’s economy will continue to outperform the nation’s in the near future, we believe that an upgrade is unlikely within the next two years absent the adoption of legislative measures that alleviate the potential sources of liquidity pressure related to the timing of required payments to schools,” Aldrete-Sanchez wrote.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.