Credit analysts warn of harm to education posed by potential state spending cuts
By David Pendered
Georgia’s early look at cutting the state budget to offset falling revenues was flagged Monday for its potential to harm the state’s quality of education and weaken the credit rating of local school districts, according to a credit outlook released by Moody’s Investors Service.
The report provides a few glimpses of the impact of potential spending cuts on the state’s kindergarten through 12th grade education system. The report contains these observations:
- “In Georgia, the five largest school districts depend on state aid for about 46 percent of their operating revenue.
- “A reduction in state aid will lead to budgetary challenges, particularly for school districts with weaker financial profiles.”
A comment that covers Georgia and other states considering cutbacks in state spending on education notes:
- “The states’ budget reductions, if taken, will cause school districts to reduce or eliminate budget reserves or cut operational expenditures, which would adversely affect education.”
Moody’s released the report after Gov. Brian Kemp and state budget officials requested on May 1 that all state departments identify possible spending cuts. The request called for a total reduction of 14 percent.
If implemented, a 14 percent spending cut would save the state $3.9 billion. Of that, $1.5 billion could come from education, according to the report from Moody’s.
The proposed 14 percent reduction represents a new 8 percent reduction that would be in addition to the 6 percent reduction Kemp had ordered in a directive issued in September 2019. School districts were not included in the initial 6 percent reduction, according to the statement from Moody’s analysts.
The proposals, if implemented, would benefit the state at the expense of local school districts, according to the credit outlook. It observed:
- “The preliminary cut is credit positive for the state because it aims to maintain its balanced budget despite an expected decline of tax revenue amid the coronavirus-induced downturn, but it will weigh on local school districts’ finances, which may not be spared the cut, a credit negative.”
The call for spending reductions Kemp and budget writers requested on May 1 are to cover the budget year that begins July 1 and ends June 30, 2021. The order includes the state Department of Education, which accounts for 47 percent of the state’s $27.5 billion budget.
Kemp’s initial proposal for the FY 2021 budget provided $13 billion in total funding for education. The source of funds includes $10.9 billion in state funds, and $2.1 billion in federal funds, according to the budget proposal.
The figures are provided in The Governor’s Budget Report, which covers the current and upcoming fiscal years.
The sum included $11.9 billion in state general funds for Quality Basic Education.
QBE is the state program, adopted in 1985, that allocates state funds to local school systems to educate public school students. QBE increased the state’s ability to intervene in underperforming school districts and to raise professional standards for teachers. QBE represents the state’s keystone effort to provide a level playing field in terms of school funding.