A top investment ratings agency — which helps investors understand the fiscal health of the state — says the state will not take a credit hit following the recent Supreme Court ruling that the Legislature does not have to fully fund the state’s public education funding formula.
But the agency, Moody’s Investors Services, said the decision is “credit negative” for school districts because it “increases the likelihood of continued legislative underfunding.”
The report, released last week, does not indicate a change in any credit rating or outlook. Periodically, Moody’s releases reports following events that could affect ratings or outlooks for states, school districts or other entities the firm rates.
Dozens of factors, including legal proceedings over funding disputes, are considered by credit ratings agencies as they score the state’s ability to pay its debts.
“The (Mississippi Supreme Court) decision is credit negative for Mississippi school districts 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,” the Moody’s report said.
The report continued: “Removing the risk of either a one-time payout or increased annual appropriations is credit positive for the state.”
Settling a years-long legal battle, the state Supreme Court ruled Oct. 19 that lawmakers don’t have to fully fund the state’s public education funding formula, the Mississippi Adequate Education Program. Lawmakers have fully funded the formula just twice since its inception in 1997.
Lt. Gov. Tate Reeves and House Speaker Philip Gunn, who lead public education funding efforts each year in the Legislature, declined to comment on the report Tuesday.
This fiscal year, Mississippi appropriated $2.2 billion in education funding for local school districts through the funding formula, which is about $40 million less than last fiscal year and about $230 million less than called for if the MAEP formula was fully funded.
From 2009-17, the Legislature underfunded MAEP by $1.9 billion, the Moody’s report said.
Moody’s rates 18 public school districts in the state. The underfunding of MAEP accounted for more than 5 percent of the budgets for six of those districts, the report said.
Twenty-one school districts sued the state in 2014 for failure to fully fund the formula, which determines funding level for public schools. Ignoring the formula, plaintiffs argued, violated the state constitution’s requirement to provide free public education to citizens. The case rose to the state Supreme Court, where the mid-October ruling came down.
Former governor Ronnie Musgrove, the last Democrat to occupy the governor’s mansion, represented the school districts in the case.
Republican lawmakers praised the court’s decision last week, pointing to the partisan nature of the long running public education funding legal battle and greater statewide debate.
“Mississippi’s Constitution is clear – it is the Legislature’s sole authority to allocate tax dollars, and I appreciate the decision of the justices to dismiss the lawsuit by a former Democrat elected official,” Reeves said.
“I’m proud Mississippi’s Republican leaders have prioritized education at all levels and spent about $400 million more than it did just six years ago, and we will continue to find more ways to invest in the classroom to provide opportunities for our kids.”