WASHINGTON Oct 15 The widening reach of charter
schools across the United States is raising red flags for credit
rating agencies about the financial support of urban public
"Charter schools are now significant competitors for
public...school districts, particularly in older core cities,
where they have achieved substantial, double-digit growth in
enrollment," said Moody's Investors Service in a special report
"While the vast majority of traditional public districts are
managing through the rise of charter schools without a negative
credit impact, a small but growing number face financial stress
due to the movement of students to charters," it added.
In August, another major credit agency, Standard & Poor's
Ratings Service warned the rise of charter schools could pose
credit risks to districts, too.
Most states - 42 out of 50 - have charter schools, publicly
financed institutions operating independently of districts and
frequently run by corporations. According to Moody's, one in 20
U.S. students attends a charter school, so called because it is
granted a charter to provide alternative education to standard
But in 11 major cities, the percentage is much larger,
"making charter schools a predominantly urban phenomenon,"
In the New Orleans Public School System, nearly 80 percent
of students attend a charter institution, according to Moody's.
For Washington, D.C. and Detroit the portion is 40 percent.
In Albany City School District, Cleveland Metropolitan
School District, San Antonio Independent School District and St.
Louis Public Schools more than 20 percent of students attend
Property tax revenues provide the bulk of school funding.
But with the bursting of the housing bubble and financial crises
hitting cities, state aid to school districts became increasing
vital. States often determine funding using student populations.
Lower funding for public schools could damage their quality,
and in turn push more students into charters, Moody's said.
In Detroit, enrollment in public schools fell 58 percent
between 2002 and 2012. While the city's overall population
decline contributed to the fall, many students also left for
charters. In 2012, Detroit public schools received $495 million
in state aid, compared to $1.2 billion in 2002, Moody's said.
For Philadelphia, where education funding problems have
grabbed national headlines, the transfer into charter schools
has been swift, with charter enrollment nearly doubling in four
years. The school district could not cut costs quickly enough to
counterbalance the plunge in funds, Moody's said.
President Barack Obama believes charters can improve U.S.
public education. Last month, his administration awarded $2.8
million in grants for expanding charter schools.
Still, another major rating agency, Fitch Ratings, is
concerned the schools are financially shaky. It cut 23 charter
schools' ratings this spring, finding their "operating history
and financial and debt profile are generally speculative grade."