Two Moody’s Reports: 2015 Michigan Schools and 2016 Charter School Ratings Criteria
In this post, I offer two documents published by Moody’s Investors Service for perusal of any readers who wish to view them.
The first is a 16-page, November 2015 report on the credit weaknesses in numerous Michigan school districts:
I will highlight only one section of the above report; the section is entitled, “Competition from Schools of Choice Benefits Some Districts at the Expense of Others.” Two issues caught my attention. The first is that the article includes stats from the Mackinac Center, which I wrote about in this March 2016 post, and which has pushed for emergency managers in Michigan and is funded by the Dick and Betsy DeVos Foundation. The second is the final statement of the excerpt about school choice not being “a reliable option” for “maintaining revenue” in struggling school districts:
Competition from Schools of Choice Benefits Some Districts at the Expense of Others
Since its inception in 1996, the state’s Schools of Choice program has provided students with significant flexibility in deciding whether to attend their home district or another. The state has promoted district participation with some funding incentives in the past, though the number of seats available for out-of-district students is at each district’s discretion. The number of students opting for schools outside of the district in which they reside through Schools of Choice has risen on an annual basis over the last decade. Total participation in the program now exceeds 100,000, nearly 8% of total Michigan students enrolled in traditional publicly funded schools. According to a 2013 research study conducted by the Mackinac Center for Public Policy, students in rural districts (9.7%) were more likely to participate in Schools of Choice, than students in suburbs (8.0%), towns (6.7%) or cities (2.8%). Reasons why students in rural districts participate in a higher rate include, closer proximity to neighboring districts in expansive districts or greater programming offerings, while city students are more likely to have access to charters. The relatively high participation rates in Schools of Choice has been cited as an argument for increased consolidation among Michigan traditional school districts. Given the lack of revenue-raising options for individual districts, participation in the program provides a district with an opportunity to increase, or at least maintain, operating revenue via per-pupil state funding levels. In areas with widespread competition for students, such as tri-county metro Detroit, students are more likely to seek attendance at high-performing districts. High-performing districts are more likely to offer a greater variety of services than those districts cutting service levels as a result of deteriorating finances. As such, Schools of Choice may not be a reliable option for financially struggling districts to improve bolster or maintain revenue.
The second Moody’s report in this post is from August 2016. It is Moody’s 21-page, updated “charter school scorecard,” or the updated criteria by which Moody’s rates charter school credit risk:
An excerpt from the report intro:
The charter schools sector is still young and growing, and as such its credit fundamentals are characterized by multiple speculative elements. Given highly competitive local market environments for charter schools, their often small scale, and in many cases their nature as start-up enterprises with often unproven management and generally narrowly balanced finances, charter schools across the nation face unique credit challenges. Those challenges have translated into an above average incidence of defaults relative to other tax-exempt credits. The overall credit quality of this sector ranges from low investment-grade into low speculative-grade categories.
The report continues with the view that the charter sector is “young” but growing and will therefore become more stable as time passes.
Moody’s charter school ratings methodology report does not assess the influence of the presence of charter schools (or the expansion of the charter sector) upon districts or states. It does explain in detail its ratings rubric, which includes four general areas:
- Scale and Demand
- Operating Performance and Liquidity
- Leverage and Coverage
- Charter Renewal Risk and Government Relations
I will close with one critical acknowledgement of Moody’s charter school ratings:
We rely on the accuracy of audited financial statements to assign and monitor ratings in this sector.
In short, Moody’s depends upon the charter sector to tell the truth about itself, for the trumpeted “greater autonomy” of charter schools often includes the school or its management organization selecting its own “independent auditor,” which begs for an independent auditor to audit the independent auditor in order to smooth out any contorted math.
There is much more to the two reports than I have highlighted in this post. Feel free to partake.