Texas school finances strained by stagnant state funding, Moody’s says

Stagnant state funding and rising costs are reducing budget flexibility for Texas school districts, according to a report released this week by Moody’s Ratings.

School budgets have been strained by persistent inflation and the end of pandemic-related federal aid, while their per-pupil basic allotment from Texas has remained at $6,160 since 2019.

“If funding remains stagnant, it could lead to a reliance on financial reserves or expense cuts, which ultimately will impact either financial health or the core educational mission,” the report said, adding, “healthy financial reserves and strong management will continue to support credit quality.”

It also noted voters rejected 30 of the 52 property tax rate increase propositions districts placed on Nov. 5 ballots, further pressuring finances. 

“Without a main revenue-generating tool, districts will struggle to address key priorities (for example, staff raises and security upgrades) without relying on financial reserves or cutting expenses in other areas,” Moody’s said. 

At a Texas Public Policy Foundation event on Wednesday, Republican Gov. Greg Abbott, who made a private school voucher program a top priority for the 2025 legislative session, said average per-student public school funding is at an all-time high of more than $15,000. But that total includes the state’s $6,160 allotment, as well as federal, local, and other funding sources, according to a chart he posted on the X platform. 

“When this session ends, we’re going to be providing more funding for public education than ever before in the history of the state of Texas,” he said. “We’re gonna pay the highest average teacher salary ever in the history of the state of Texas.”

The Republican-controlled Texas House and Senate budget proposals include more money for schools, although it is unclear if the basic allotment will be boosted.

Abbott also reiterated his call to make it tougher to for schools and local governments to hike property tax rates by requiring two-thirds voter approval.

 S&P Global Ratings said earlier this month that credit deterioration for Texas public schools could spread in fiscal 2025 and 2026 if action is not taken to address revenue shortfalls. 

“We expect budgetary pressure will continue if basic aid funding is not adjusted to accommodate inflationary growth in operating costs, or if the requirement to adopt essentially revenue-neutral local tax rates is not balanced by electorate-approved increases to local property tax rates above this neutral level,” a S&P report said.

Negative actions taken by S&P for Texas school districts’ underlying ratings outpaced positive ones over the last year, while median reserves as a percentage of general fund revenue or expenditures fell to 36.8% in 2024 from 40.7% in 2023, according to the report.

In recent years, Texas school districts have been prolific issuers of voter-approved general obligation bonds, which get triple-A ratings through the Texas Permanent School Fund’s bond guarantee program.