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Charter school vote may hurt ratings, credit agency says

Mayor Daniel Rivera called Moody’s analysis “worrisome.’’

Globe Staff/File 2013

Mayor Daniel Rivera called Moody’s analysis “worrisome.’’

The credit-rating agency Moody’s Investors Service is warning Boston and three other Massachusetts cities that passage of a ballot measure to expand charter schools could weaken the municipalities’ financial standing and ultimately threaten their bond ratings.

In e-mails sent Monday, Nicholas Lehman, an assistant vice president at Moody’s, warned that passage of the referendum would be “credit negative” for the cities.

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“Depending on the Nov. 8 vote, the general credit view is the following: A vote of ‘No’ is credit positive for urban cities. A vote of ‘Yes’ is credit negative for urban cities,” Lehman wrote.

Lehman told the cities he would provide a draft analysis of the referendum’s impact on Wednesday and solicit their comment, publishing a full report after the election.

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It was not clear Tuesday what has Moody’s concerned. But opponents of the ballot measure have stressed that city-run, traditional public schools can lose education aid as students migrate to charters.

Eileen O’Connor, a spokeswoman for the pro-charter “Yes on 2” campaign, said it would be irresponsible to comment on the Moody’s analysis before it was released. But she pointed to studies by the nonpartisan Massachusetts Taxpayers Foundation, among others, showing that “public charter schools have had zero negative impact
on district school finances.” She noted that
these studies, unlike the forthcoming Moody’s analysis, can be “downloaded and viewed in their entirety.”

Opponents of the charter school measure immediately seized on the Moody’s e-mail, saying it reinforced their concerns that city finances could be undercut if voters approve an expansion of charter schools.

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“This is not us running an unfiscally sound city,’’ said Boston Mayor Martin J. Walsh. “It is not because of any decision by us and the City Council. It is a ballot decision that could potentially give the city a detrimental downgrade.”

Mayor Daniel Rivera of Lawrence, whose city also received the Moody’s e-mail, called it “worrisome.’’

“An independent rating agency tells you there is going to be a substantive impact, you have to listen,” said Rivera, who opposes the question.

The mayors of the two other cities who got the Moody’s e-mail, Springfield and Fall River, could not be reached for comment late Tuesday.

Moody’s municipal ratings are important for cities and towns when they float bonds to finance operations or pay for capital expenditures. When bond ratings are downgraded, it costs more for the governments to borrow money. Boston’s current credit rating from Moody’s is Aaa, the highest possible.

Lehman, the Moody’s official, told the cities that his report on the Massachusetts charter school vote would be “one of many articles on various votes that have credit impact across the country.”

In the past, the agency has warned that the dramatic rise in charter school enrollment nationwide is likely to create “negative credit pressure” on school districts in economically weak areas.  

‘It is a ballot decision that could potentially give the city a detrimental downgrade.’

Martin J. Walsh, Boston mayor, on consequences of Question 2 passing 
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When districts lose students and money to charter schools, the agency said, they often find it difficult to adjust by cutting staff and closing underutilized school buildings because of union contracts.

The potential financial drag of charter schools is just one of many factors credit agencies would consider when setting bond ratings for cities.

The Moody’s e-mail comes as pro-charter forces in Massachusetts are battling to win approval of Question 2, which would allow for 12 new or expanded charter schools each year.

Supporters have spent over $21 million on their campaign.

The opposition, led by teachers unions, have spent more than $12 million.

A Suffolk University/Boston Globe poll taken last week found voters split on the charter school ballot proposal.

There are currently 78 charter schools in Massachusetts. The schools have a freer hand with budgets, curriculum, and hiring than traditional public schools and are frequently not unionized.

The fiscal impact of charters has been a central issue in the Question 2 campaign, with opponents arguing that expansion would be financially crippling to traditional public schools. But supporters downplay the fiscal impact and say it’s only fair that education aid follows students who leave traditional public schools for charters.

Samuel Tyler, president of the Boston Municipal Research Bureau, a fiscal watchdog, said passage of Question 2 could impose financial hardship on cities. But he said he expected passage would force Boston to close traditional public schools with empty seats and negotiate concessions from teachers. The state, he said, would also face pressure to step up and aid its capital city and economic engine.

“I would think that, between the city and the state, steps would be taken to mitigate the impact and not create a negative credit situation in the city,” he said.

Frank Phillips can be reached at frank.phillips@globe.com.
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