Back To School; A Lesson For K-12

While school districts generally represent stable to strong credits, they rely upon various levels of state aid and with the current revenue dislocation at the state level, future allocations of state aid remain uncertain. For school districts, having limited flexibility to cut expenditures, school closures and loss of average daily attendance could impact per pupil funding or some other formulaic distributions. Revenue shortfalls in the host state could result in lower education aid, particularly as competing needs for limited resources expand. This may become more problematic should individual state recoveries retrace their progress in response to troubling virus transmission rates, further disrupting tax revenue performance. In our view, historically strong state support for schools should help deter material disruption in financial profiles. Liquidity and budgetary reserves that have been strengthened by strong economic advances, albeit unevenly, can help to address structural imbalances that may be experienced across the K-12 sector of the municipal bond market.

School districts’ general reliance upon property tax receipts as another major source of funding provides a degree of stability and predictability, yet disparity is recognized between wealthier and poorer school districts with wealthier ones receiving higher levels of funding through property taxes. Given the wide-ranging uncertainty over the pandemic and the delivery of K-12 education, it is difficult to project what adequate funding levels should be, yet suffice it to say, the number is probably considerably higher than what we are presently seeing. As we enter August, the logistical delivery of a public school education remains unclear and we do not expect a one-size-fits-all solution for the states given the varying pandemic status, with a need to exercise great caution and the absence of a full and sustainable economic re-entry. Students, parents, teachers and administrators have seen their anxiety levels reach alarming proportion and the issues surrounding health and safety, on-line learning, child-care needs, transportation requirements, the realities of downsizing staff levels through layoffs and furloughs, and disrupted socialization norms with all of the emotional and psychological implications have become all-consuming.

We would point out that school reopening limitations through virtual or hybrid applications may bring about additional funding needs for school districts to cover costs associated with technological upgrades such as laptops, the development of on-line criteria, professional training for staff, supplemental education for those students who fell behind at the end of the last academic year, and the development of remote oversight needed to gauge student performance. Unfortunately, such unforeseen expenses would come about as a number of state governors have already signaled material across the board agency cuts in state support. Without adequate assistance from fiscal relief efforts, school districts may find themselves overly burdened with the potential for a harmful crowding out of essential expenditure needs and a disproportionately adverse impact upon lower socio-economic districts that generally have more constrained revenue-raising capacity as compared to wealthier districts. We must also be concerned over the potential impact of reduced aid for school districts upon levels of student achievement such as test scores and graduation rates, as well as on school capacity and safety needs. Again, to the extent this is material, we expect to see a disparity between the most wealthy and poorer districts.

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