October 26, 2017 / 7:14 PM / a year ago

Mississippi court ruling is credit negative for schools: Moody's

NEW YORK (Reuters) - Moody’s Investors Service on Thursday said a recent ruling by Mississippi’s highest court against a number of public school districts that sought increased funding is negative for the state’s school districts’ credit.

The Mississippi Supreme Court on Oct. 19 said the state did not have to follow a funding formula for public schools set by the Mississippi Adequate Education Program (MAEP), which state lawmakers established 20 years ago.

Districts which brought the lawsuit said state lawmakers withheld funds for classrooms over several years, shrinking the pool of money used for teacher salaries, textbooks and special education.

The ruling is negative for Mississippi school districts’ credit because it “makes the recovery of past MAEP funding shortfalls highly doubtful, and increases the likelihood of continued legislative underfunding of the state aid formula,” Moody’s said in a statement.

Mississippi’s 2018 budget devotes $2.2 billion to local school districts, about $214 million below the fully funded amount set by MAEP, Moody’s said. From 2009 to 2017, the state gave schools $1.9 billion less than what MAEP required.

While the state’s school districts have some flexibility to raise revenue and cut costs to make up for the shortfalls, they are challenged by increasing fixed costs and pension liabilities, Moody’s said.

Mississippi school districts have no existing credit outlook, Moody’s said.

Reporting by Laila Kearney; Editing by Daniel Bases and Lisa Shumaker

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