Moody's: Pa. charter rules are wrecking Phila. School District

Unless the Philadelphia School District raises more than $200 million extra in a hurry, Moody's Investors Service warned it will cut the district's bond rating -- which is already down at Ba2, junk status, forcing the district to pay extra when it borrows money -- because the district's proposed $2.5 billion budget for the next fiscal year will "materially imperil its ability to provide students with an adequate education."

Without $216 million in additional funding, Moody's analyst Dan Seymour wrote in a report to clients, the district threatens to increase the average class size to 41 students and lay off more than 1,000 staff. " This is credit negative because a further deterioration in education services will likely result in additional student flight to charter schools and other alternatives," further reducing district revenues, Seymour added. 3 in 10 Philadelphia students already go to charter schools.

"Rising charter school enrollments have been a drag on the district's finances, as state law mandates that public school districts pay the costs of sending students to charter schools. Driven largely by charter school tuition costs, the district's costs per pupil have increased 70% since 2004. Further enrollment declines would exacerbate the district's financial pressure as charter schools capture a larger share of the district's expenditures," Moody's adds.

"The school district has very limited means of raising revenues and has cut costs aggressively, reducing teaching staff by 22% from 2004 to 2013, closing 24 schools in 2013 and cutting substantially again this year with further personnel reductions. However, most of the district's remaining budget consists of mandatory expenditures, with charter school tuition and transportation costs, debt service, and pension contributions together comprising half of the district's budget."