Moody's Investors Service said this week that the Kansas Supreme Court's ruling in a school finance case last week casts a negative outlook the state's credit rating.
“The decision is a credit negative for the state of Kansas (Aa1 negative) because the mandated increase will pressure state finances that are already stressed by revenue losses from income tax cuts,” the company said in a report issued Thursday.
The court ruled last week that the Legislature needs to restore an estimated $129 million in state funding for capital outlay and local option budgets for lower-wealth districts.
But it also remanded back to the three-judge trial panel the larger question of whether state funding for K-12 education overall is unconstitutionally inadequate. That panel ruled in 2013 that the Legislature needed to restore base state aid to the statutory level of $4,492 per pupil, an increase that would have cost about $450 million a year in additional funding.
The Supreme Court said the panel used the wrong standard for determining whether base funding was inadequate and directed the lower court to reconsider that issue using a different standard.
Moody's also gives credit ratings for 42 of the state's 286 local school districts. The company said the restoration of capital outlay and LOB funds will have “minimal positive credit benefits” for those districts.
“Because our 42 rated Kansas school districts rely on state aid for an average of 65 percent of operating revenue, in recent years most districts have reduced operating expenditures in line with state funding cuts to maintain operational balance,” Moody's said. "Any increased aid following the court decision will likely be used to reinstate recently cut programs or undertake deferred capital projects, rather than to bolster district fund balances or cash positions.”