Sector Study: New York State School Districts
This Sector Study explores the operating environment faced by New York school districts and discusses how the municipal bond market is pricing the challenges faced by these issuers.
School districts across New York State (NYS) are in the midst of a growing fiscal crisis that threatens to undermine both the quality of education and credit quality of districts if current policies remain in place. Many school districts in the sector are highly rated, have meaningful resources, and achieve an important public purpose crucial to the nation’s future: preparing children for the intellectual demands of the 21st century and to lead lives of purpose and fulfillment. Yet, the policy mix in New York State has created challenges for local school districts, increasing the operating risks for some, though the sector in aggregate still remains healthy and can play an important role in building a diversified bond portfolio. It is a crisis that is born of the fiscal burdens that local school districts shoulder as they seek to finance a growing list of state mandates that are partially or even completely unfunded by the state. Compounding matters, since 2011 NYS law has limited a local school district’s ability to raise revenues through property tax increases. While these operating challenges present threats to fiscal solvency, the single largest portion of a school district’s budget is the cost of labor and state legislation in this area severely hamstrings school district management. This financial squeeze was exacerbated by NYS budgets that reduced state aid to local school districts in the years after the financial crisis. Though the level of state aid is beginning to recover, many school districts are already in crisis.
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