Wall Street Gives Mixed Review of Education Ruling
HARTFORD, CT — More than a week after Connecticut’s Supreme Court decided that Connecticut’s education system was flawed, but not unconstitutional, one Wall Street firm is says it’s “credit positive” for the state, but not necessarily it’s three biggest cities.
Connecticut’s highest court decided on Jan. 17 to leave how the state funds its education system up to the legislative and executive branch with its 4-3 decision.
Moody’s Investors Service said the new ruling “is credit positive for the state, which is challenged by a declining economy and high fixed costs, because the decision removes a potential expense-cutting obstacle.”
At the same time, it’s credit negative for Bridgeport, Hartford, and New Haven, because it removes a judicial mandate and “makes their education funding more vulnerable to the state’s political and financial uncertainties.”
It pointed out that the state has reduce education funding to “high-need local governments in the past. “As recently as 2015, the legislature restructured the education formula and reduced aid just a year after reforming the formula. And it cited the November 2017 mid-year education cuts Gov. Dannel P. Malloy made that targeted more affluent cities.
“The court decision removes one source of funding protection and presents uncertainty for Connecticut’s financially strapped large cities, which we expected would benefit from the 2016 judgment,” Moody’s analysts wrote in a weekly credit outlook. “Connecticut’s largest cities typically receive significant state funding, but maintain narrow fund balances. On a local level, the largest cities are constrained by practical limits on revenue-raising opportunities.”
The credit outlook released Thursday by Moody’s also states that Connecticut has struggled financially in recent years because of its high fixed costs, which limit the state’s ability to respond to recurring budget gaps.
“Baseline revenue in fiscal 2018 is underperforming, and the budget office has identified a gap of more than $200 million in both this year and next,” Moody’s wrote. “The state’s near-term budget stress may be mitigated by a mandatory rainy-day fund deposit of around $664 million in one-time tax payments by hedge funds in December that stemmed from a 2008 loophole-closing measure by the US Congress.”
Patrice McCarthy, deputy director and general counsel for the Connecticut Association of Boards of Education, which was one of the plaintiff’s in the lawsuit, said they hope the decision gives the legislature the motivation they need to fix the funding formula.
“It certainly is going to be talking point whether it’s an action point is a different question,” McCarthy said during a recent phone interview.
She said the legislature should be working together on a process they will lead to a sustainable funding formula.
“Doing something quickly is not necessarily doing something well,” McCarthy added.
The new legislative session is expected to start on Feb. 7.
It is scheduled to end the first week of May.