K-12 Tax & Spending Climate: California's Budget Agreement May Hurt School Credit Most, Moody's Says

Michael B. Marois

The budget agreement California Governor Arnold Schwarzenegger and lawmakers reached last month will have a "negative influence" on the credit of school districts more than on other parts of local government, Moody's Investors Service said.

School districts will face cash-flow problems because the state delayed or deferred subsidies they are owed, Moody's Senior Vice President Eric Hoffmann said in a report today. Counties and cities should be at less risk, he said.

Schwarzenegger signed the $86.6 billion budget Oct. 8 after lawmakers wrestled over an agreement for 100 days into the fiscal year, the longest the most populous U.S. state has ever gone without a spending plan. It eliminated a $19 billion deficit by cutting spending almost $8 billion, half of that from health and welfare programs administered by local governments. It also delayed paying more than $5 billion in subsidies to schools and community colleges.

"These new cross-fiscal year deferrals could particularly pose a challenge for school districts with narrow liquidity and outstanding tax and revenue anticipation notes due on June 30, the last day of their current fiscal year," Hoffman said in the report.

Posted by Jim Zellmer at November 9, 2010 1:44 AM
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