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Credit downgrades another sign of trouble in Michigan's schools

Forty-three Michigan school districts will start this school year with a lower credit rating.

The Detroit News reports that Moody’s Investors Service downgraded the districts over the past year.

Analysts say the credit downgrades won’t have an immediate impact on school operating budgets. And Moody’s is one of three major rating agencies.

But those ratings do affect borrowing rates for long-term district investments — things like building repairs or technology upgrades.

And they reflect the increased financial stress facing school districts across Michigan, from urban districts like Detroit and Lansing, to suburban Farmington and rural Stockbridge.

“I think the downgrade is one signal that the capital markets are seeing some of this financial stress in school districts,” says Craig Thiel, a senior researcher with the Citizens Research Council of Michigan.

The list also includes districts in reasonably strong fiscal health, like affluent East Grand Rapids, and Kalamazoo, which unlike many Michigan districts is seeing higher enrollment.

“You’ve got some districts on here that people might not necessarily think of as being financially struggling,” Thiel said.

The L’Anse Creuse school district in suburban Macomb County is a good example of the general situation many Michigan districts face. Moody’s downgraded the district’s credit rating two steps on August 19.

“Like most districts across Michigan, L’Anse Creuse is combating financial challenges due to a decrease in the state determined per pupil foundation allowance and a decline in student enrollment due in large part to lower birth rates,” the district says on its website.

Though there has been some debate about that “decrease” in state per-pupil funding, there’s general agreementthat those funds are increasingly being eaten up by retirement costs, and generally haven’t kept pace with inflation.

Thiel says since Michigan school districts are strictly limited in raising new revenues by state law, they face two choices: dip into savings funds, or cut costs through measures ranging from laying off staff to privatizing services.

Like many districts, L’Anse Creuse has done some of both to tackle its operating deficit, estimated at $2.3 million for the coming school year.

“The district will continue to make the changes necessary to balance the budget,” the district said on its website. It’s not alone.

“Michigan’s shrinking student population is squeezing school districts statewide, forcing many to close classroom buildings and make other painful cuts as enrollment-based revenue dries up,” The Detroit News reported August 16, citing declining state aid, smaller families, and increased competition from charter schools as contributing factors.

Sarah Cwiek joined Michigan Public in October 2009. As our Detroit reporter, she is helping us expand our coverage of the economy, politics, and culture in and around the city of Detroit.
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