April 24, 2013 / 7:01 PM / 7 years ago

Sequestration could hit some school districts: Moody's

WASHINGTON (Reuters) - The across-the-board federal spending cuts known as sequestration could have serious financial consequences for 10 U.S. school districts in New Mexico, Wisconsin, New York, Texas and California, Moody’s Investors Service said on Wednesday.

Local governments receive only 5 percent of their revenue directly from the U.S. government, and school districts also only get a sliver of their funding from federal programs, Moody’s said. On the whole, the rating agency expects local governments’ revenue declines to be limited from sequestration.

Still, the $85 billion in automatic cuts stretching from last month through September will lead to $58 million in reductions to “federal impact aid,” which is provided to school districts near Native American reservations, military bases and other areas where property tax revenue is kept low by a federal presence.

The cut is “a minimal amount in aggregate, but a material amount for certain districts,” Moody’s said.

Those districts can mostly be found in New Mexico.

Federal impact aid provides 54 percent of the revenue of Dulce Independent School District, which sits on the state’s Northern border, and 47 percent of Gallup-McKinley County School District, in the western part of the state, according to Moody’s. The state’s Bernalillo Municipal School District, Pojoaque Valley School District and Grants Cibola County School District all depend on the aid for 18 to 23 percent of revenue.

New Mexico as a whole is particularly vulnerable to sequestration, and Moody’s has a negative outlook on its “Aaa”-rating because of the state’s close ties to the U.S. government. Federal spending is 12.8 percent of the state’s gross domestic product, according to the Pew Center on the States.

The Defense Department also is a major employer, and Moody’s warned in December that military cuts could put the state’s economy at risk.

For Lac Du Flambeau School District, in Wisconsin, federal impact aid is 27 percent of general fund revenue and for Indian River Central School District in New York, it is 25 percent.

Texas has two school districts that will be affected - Copperas Cove Independent School District, where aid is 23 percent of revenue, and Killeen Independent School District, where it is 19 percent.

In California, Muroc Joint Unified School District relies on the funds for 16 percent of revenue.

Reporting By Lisa Lambert; additional reporting by Caryn Trokie; Editing by Richard Chang and Nick Zieminski

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