Key Takeaways
U.S. charter schools maintained credit stability in 2022. With significant help from federal emergency funds, as well as stable to increasing per-pupil funding and general enrollment growth across the sector, charter schools entered 2022 with greater financial flexibility.
Proactive management supported credit quality across the sector. Management teams were able to pivot swiftly and successfully to varied instructional modes, reinforcing the need for sound governance and communication, contingency planning, and internal controls to mitigate risk.
As we look ahead to 2023, key questions will affect credit quality. What will be the lasting implications of the COVID-19 pandemic on kindergarten to grade 12 learning loss, and will it affect charter authorization and renewals? Will enrollment continue to increase post-pandemic? How will per-pupil funding for charter schools fare as inflation and rising expenses affect state budgets? These questions will be addressed in our 2023 sector view report.
As 2022 winds down, the charter school sector continues to exhibit stability from growing demand and generous federal emergency funding. For many schools rated by S&P Global Ratings, a significant percentage of those funds remains to be spent during fiscal years 2023 and 2024, which provides financial flexibility. Enrollment remains stable to growing, a positive indicator that has allowed management teams to focus their efforts and reserves on supporting educational programs to mitigate the pandemic-related learning loss that occurred for many students.
Enhanced liquidity during 2022 has helped support credit quality, but the general direction of the economy will be important as inflation, rising expenses, and labor shortages continue to affect school budgets. Our chief U.S. economist has indicated a shallow recession is likely in 2023 (see "Economic Outlook U.S. Q1 2023: Tipping Toward Recession," published Nov. 28, 2022, on RatingsDirect). However, state rainy day funds have reached an all-time high--with no plans to draw-down--and many states continue to outpace fiscal 2023 revenue forecasts year to date. This mitigates the risk of per-pupil funding cuts or a midyear recession for charter schools, in our view, although history shows that, should states squeeze their budgets, reductions to state-shared revenues for local governments will likely follow. This would hit charter schools particularly hard because they rely heavily on these revenues, especially if possible funding pressures arise just as the support from the additional federal relief funds winds down.
For more information on our credit perspectives on a state-by-state basis, see the charter school briefs published in 2022 and listed below.
We invite you to hear more about our forward-looking sector view during our 2023 Outlook Webinar Series in January. You may register here.
Rating Performance
The rating distribution for charter schools remains stable and the outlook distribution has improved throughout 2022 (see charts 1 and 2). Negative outlooks represent only 6% of total outlooks compared with about 10% this time last year, and 7% of our outlooks are now positive compared with only 3% this time last year. Demand for charter schools continues to rise, with enrollment increasing while traditional public school enrollment has declined. These factors and a healthy financing environment led to the assignment of 26 new ratings year to date in 2022, which compares favorably with 28 new ratings in 2021.
For the first time in many years, upgrades exceeded downgrades in 2021--and 2022 year to date has shown similar rating activity, with upgrades (11) exceeding downgrades (six), compared with 14 upgrades and eight downgrades in 2021--underscoring the general credit stability and positive momentum across the sector.
Chart 1
Chart 2
Related Research
- U.S Charter Schools Ratings Actions, 2021, Jan. 31, 2022
- U.S Charter Schools Ratings Actions, First Quarter 2022, April 11, 2022
- U.S Charter Schools Ratings Actions, Second Quarter 2022, July 15, 2022
- U.S Charter Schools Ratings Actions, Third Quarter 2022, Oct. 18, 2022
- Outlook For Charter Schools: While Growing Demand And Stimulus Funds Provide Flexibility, Risks Persist, Jan. 11, 2022
- U.S. Charter Schools Sector Fiscal 2021 Medians: Schools Get A Booster From Pandemic Relief, June 14, 2022
- Charter School Brief: California, March 10, 2022
- Charter Brief: Colorado, April 25, 2022
- Charter Brief: Texas, Sept. 22, 2022
- Charter Brief: Michigan, May 24, 2022
- Charter Brief: Florida, Oct. 18, 2022
- Charter Brief: District of Columbia, Oct. 24, 2022
- Charter Brief: New York, Nov. 17, 2022
- Philadelphia Charter Schools: Unexecuted Charter Contracts Are A Unique Risk, Nov. 17, 2022
- Outlook For U.S. Independent Schools Is Stable; Medians Demonstrate Resiliency Despite The Pandemic, Feb. 17. 2022
- U.S. Public Finance Year In Review: Credit Stability. Will It Last?, Dec. 6, 2022
This report does not constitute a rating action.
| Primary Credit Analysts: | Jessica L Wood, Chicago + 1 (312) 233 7004; jessica.wood@spglobal.com |
| Avani K Parikh, New York + 1 (212) 438 1133; avani.parikh@spglobal.com | |
| Research Contributor: | Sue T Ryu, Chicago +1 3122337041; sue.ryu@spglobal.com |
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