SAN FRANCISCO - The financial environment has improved for California school districts but they will need to address numerous pressures that could offset a significant portion of projected funding growth, Fitch Ratings said in an Oct. 7 report.
"'Districts are benefitting from a third year of programmatic funding gains," said Scott Monroe, a director at Fitch. "However, budgetary pressures haven't let up. Districts must contend with a multi-year program of pension contribution increases, the scheduled expiration of temporary sales and personal income taxes in fiscal years 2017 and 2019, and pent-up wage, service level, and capital pressures."
The funding gains have been facilitated by rising state revenues and the 2012 passage of temporary sales and personal income tax hikes, which the state is directing towards funding deferral pay-downs and the implementation of the local control funding formula.
Fitch said that until LCFF is fully implemented, revenue growth rates will vary significantly among individual districts as the state directs most new revenues to districts with high concentrations of targeted students.
Another positive for school districts is the recent California State Teachers' Retirement System reform, Fitch said.
"However, the multi-year program, if enacted as currently scheduled, would raise district contribution rates by a cumulative 131% over seven years and absorb a significant portion of districts' budgetary resources for decades," Monroe said.
He also noted the state's ballot initiative to strengthen the existing rainy day fund, which would also create a new school funding reserve.
Monroe said that while the reserve is intended to lower future funding volatility, there are structural weaknesses that cast doubt on its practical effectiveness.
