New costs could affect the solvency of schools

If you or I want to borrow money to, for example, buy a house, we apply for a loan and the bank checks our creditworthiness. School districts work much the same way; if they want to build a new school, add air conditioning or a science lab, they can turn to the debt markets to raise funds.

When a district does this, loans are based on a rating from one of the major credit agencies. Generally, school district debt is considered a pretty solid investment. But a new report released this week by credit agency Fitch Ratings says that after coping with a pandemic, schools have new things to worry about when it comes to borrowing.

One of the reasons school district debt is considered a good bet is that state and local government funding for schools is stable.

“States within their own constitutions have an educational mandate,” said Ashlee Gabrysch, director at Fitch and author of the new report.

So if you lend money to a school, it’s probably good for them. But part of Gabrysch’s job is to consider both the revenues and costs of schools and how that affects their solvency. And, she said, schools face a whole host of new costs — like teachers who want to be paid more and are willing to walk away if they don’t.

“We had this pandemic, which, you know, introduced a ton of other variables, including people rethinking what they wanted their workplace to look like and voting, basically, with their feet,” said Gabrysch.

Schools need to do more to compete with the private sector to keep teachers in the classroom, Gabrysch added. This may include building better classrooms.

“What bonds can pay for are changes in conditions, right?” said Jannelle Kubinec, executive director of nonprofit education WestEd. “So, you know, you can upgrade facilities and create new lab spaces that attract students and improve teaching.”

Attracting students is another concern. Miami-Dade County Public Schools is the fourth largest district in the nation. Yet enrollment has declined over the past two decades, and each student gone means less income.

Ron Steiger, chief financial officer for the Miami-Dade district, said he’s not worried about the district’s good credit rating.

“However, that doesn’t mean I’m not worried that if we continue to lose registrations on the district side, we won’t have to make some really tough decisions.”

Like reducing the number of teachers. And taking a deposit to build a science lab isn’t that important if you don’t have the science teachers to run it.

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