This article is an opinion piece.
A few days ago the Palm Beach County School District issued a misleading press release. The release falsely suggested that recent state legislation could negatively affect the district’s credit.
It led with this big headline:
HB 7069 Could Result in Credit Downgrade
This headline was followed by this opening sentence:
Stable credit ratings for the School District of Palm Beach County and other large school districts could be at risk …
Referring to a recent statement by Moody’s, a credit rating agency, Superintendent Avossa was quoted in the press release:
“This independent analysis by Moody’s highlights one of our real concerns with this new law – the financial effect that it will have on our District, and on school districts throughout Florida,” said Dr. Robert Avossa, Palm Beach County Schools Superintendent.
These scary statements are objectively false when it comes to our school district. Even if the claims are true that the district would lose $230 million to charter schools over the next 10 years, that number is dwarfed by the $1.3 billion the district claims will be raised by the so-called Penny Tax that was approved by voters in November.
Moody’s most recent rating of the district was in September of 2016, meaning any reevaluation of the district’s credit would take into account a net gain of over $1 billion.
It is true that Moody’s suggested the charter funding law could affect credit ratings for some districts. But that statement did not take the Penny Tax into account. Avossa and the district staff all know about that tax increase and that there is no credit rating risk for our district.
We contacted the district to give them a chance to explain and defend this. The response from Leanne Evans, Treasurer is below. We do not find this satisfactory but readers can form their own conclusions.
HB 7069 requires the District to share the capital outlay tax revenue on a per student basis. The calculation takes the full amount of the capital tax revenue then deducts the amount the District needs for debt service (principal, interest and fees) based on debt outstanding on 3/1/17. The District’s capital plan assumes the taxable values will increase annually at an average of 4.5%, so the base amount to be shared will increase annually. At the same time, the District is paying off debt so the amount of debt service will decline. With those two variables, the amount we expect to provide to charters will range from $10.6 million in FY18 up to $32.7 million in FY27. The expected loss of $230 million over ten years assumes the percentage of students attending charters in Palm Beach County remains constant. If that percentage changes, the amount transferred to charters will also change.
The sales tax is dedicated to specific projects over the next ten years. Most of the sales tax money will be used for deferred maintenance and school buses. It will allow us to catch up on work that was postponed during the financial downturn and when the legislature reduced the District’s taxing authority by 25%. There is other work in the District’s capital plan that was to be funded with other funds, mainly local property taxes. This includes ongoing maintenance work so the sales tax would not be needed at the end of 10 years. The loss of $230 million is significant and will jeopardize that plan. The District is working to revise the capital plan and clearly identify the reductions that will be needed due to HB 7069.
Moody’s Investor Service issued the comment to advise investors of the challenges that all Florida School Districts will face due to HB 7069. The revenue stream used to make debt service payments is now less predictable. Additionally, they are concerned about the ability to provide the ongoing maintenance, technology and transportation for students. As revenues are reduced, they consider this to be “credit negative” just as an individual’s credit score may be reduced if they experience a pay cut. The School District of Palm Beach County is fortunate to have the support of the community, as demonstrated by the approval of the sales tax. We expect Moody’s and the other rating agencies will take that into account when they review our credit rating later this year but also expect they will question our ability to properly maintain our buildings when the sales tax expires in 2026.
We also reached out to West Boca’s school board representative, Frank Barbieri. We were told he was unavailable for comment.