The Impact of Moody’s Bond Rating Recalibration on School District Financing and Outcomes

• In Event: School Finance and Teacher Effectiveness

Abstract

We examine how Moody’s rating recalibration influences school district finances, academic performance, and the housing market. In 2010, Moody’s recalibrated its US municipal ratings from the municipal scale to the global scale, resulting in rating upgrades of 1-3 notches. The rating upgrades are unrelated to issuer fundamentals, underlying creditworthiness, or district fiscal health. Rating upgrades expanded debt capacity by allowing school districts to issue debt at a lower cost, potentially impacting a range of outcomes. Using the rating recalibration as a natural experiment, we employ event study and difference-in-difference models to estimate the impact of rating upgrades on school district revenues and expenditures. Preliminary findings show that upgraded districts issue less long-term debt, decrease revenues, and increase operating expenditures. We are expanding the analysis to student academic performance and housing market outcomes. Our study contributes to understanding how exogenous shock on debt capacity affects school district finances, student academic performance, and citizens’ willingness to pay for schooling services.

Authors

• Eric Brunner, eric.brunner@uconn.edu

• Jinhai Yu, jinhai.yu@uconn.edu