The budget proposed by California's Governor is mostly a positive for local governments, notably school districts, according to a Fitch Ratings report.
'The proposed 2015-2016 budget is a positive overall for school districts,' said Scott Monroe, Director. 'The budget would include 7.9% Proposition 98 funding growth to accelerate local control funding formula implementation, completely pay down remaining funding deferrals, and provide one-time funding for Common Core implementation.'
However, Monroe notes that 'many districts have struggled to match spending growth with rising revenues, and Fitch believes this dynamic will continue into the foreseeable future given increased retiree costs and substantial pent-up pressure for wage hikes and service level restorations.'
The budget contemplates 'limited circumstances' that would necessitate future state support for school capital needs.
The budget acknowledges financial concerns over fund balance caps created by SB 858 and indicates the administration's interest in engaging districts about the impact of the caps on financial security. Fitch views the cap as a credit negative since it could eventually result in some districts significantly drawing down on their reserves.
The proposed redevelopment agency (RDA) legislation would clarify and refine RDA dissolution statutory ambiguities and streamline administrative processes. Fitch views this as neutral to slightly positive for credit quality, as current administrative processes, while cumbersome, have enabled RDAs to pay their tax allocation bond debt service on time and in full.
Overall Fitch views the governor's proposed budget as credit neutral for counties.
For more information, a special report titled 'California Governor's Budget Mostly Positive for Local Governments' is available on the Fitch Ratings web site at www.fitchratings.com.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research: California Governor's Budget Mostly Positive for Local Governments
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=855408
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