Moody's said the charter school expansion would have put increased pressure on budgets in cities such as Boston, Fall River, Lawrence and Springfield.
The decision of Massachusetts voters to reject a ballot question expanding charter schools is "credit positive" for urban cities like Springfield and Boston, the rating agency Moody's said Tuesday.
"The result is credit positive for urban local governments because it will allow those cities and towns to maintain current financial operations without having to adjust to increased financial pressure from charter school funding," Moody's wrote in a report.
The ballot question would have allowed state officials to approve up to 12 new charter schools a year outside of an existing cap. The current cap ensures that school districts spend no more than 9 percent of their budgets, or 18 percent in low-performing districts, paying for student tuition to charter schools. That limits the number of charter schools that can grow or expand in urban areas like Boston and Springfield, resulting in waiting lists.
A central part of the debate over charter school expansion was funding. When a child attends a charter school, the state money to educate that child goes to the charter school, although the district gets reimbursed for the first years to smooth over the transition costs. Opponents of charter school expansion say the funding formula took money from the traditional public schools, hurting struggling districts, even though the loss of students did not affect the schools' fixed costs.
Moody's wrote in its report that since 2010, cities like Boston, Fall River, Lawrence and Springfield have seen charter school spending grow by 83 percent even as overall spending on public education in the state grew by only 15 percent.
The report stated that so far, charter school spending has not had a direct impact on the credit ratings of these cities because the cities have relatively healthy credit profiles and the loss in education spending can be made up elsewhere in city budgets. Moody's notes, however, that this does limit the amount of money available to spend on municipal services.
The report stated that charter school expansion poses the risk that schools will not be able to adjust to the loss of revenue, since even if the student population drops at a district school, schools still must pay for costs like transportation and infrastructure.
The report noted that some of the cities with the greatest number of charter schools, including Springfield, also suffer from high poverty rates.
"Charter schools tend to proliferate in urban areas where school districts already reflect a degree of underlying economic and fiscal stress that can detract from a city's ability to deliver competitive services and can prompt students to move to charter schools; this growing competition can sometime create a 'downward spiral,'" the report stated. "A city that begins to lose students to a charter school can be forced to weaken educational programs because funding is tighter, which then begins to encourage more students to leave which then results in additional losses."
The report is not a surprise. The Boston Globe reported days before the election that Moody's warned four urban mayors, including Springfield Mayor Domenic Sarno, that a yes vote on the ballot question might negatively affect their city's credit rating. But Moody's refused to officially confirm that until after the election.
The report does not mean the cities' credit ratings will immediately go up, but only that the charter school vote will be a positive factor when the credit agencies next revise credit ratings. The credit rating of a city is important because it affects the interest rate at which a city can borrow money for infrastructure projects.
Maintaining Charter School Cap is Credit Positive for Massachusetts Cities by Shira Schoenberg on Scribd