Study: Fort Bend (TX) and Gwinnett County (GA) are the most fiscally stressed school districts in the nation

A new Reason Foundation report finds Fort Bend Independent School District in Texas is the most stressed large district in America, earning seven red flags in an analysis of eight key financial metrics assessing both long-term solvency and short-term liquidity.

The Gwinnett County Board of Education in Georgia has six fiscal red flags, the second-worst among school districts, the Reason Foundation finds.

Four districts—Frisco Independent School District north of Dallas, Omaha Public Schools in Nebraska, the Chicago Board of Education, and Denver Public Schools—have five fiscal red flags.

Eight school districts, including Los Angeles Unified, have four red flags.

Among the 100 largest public school districts in the United States, the combined reported liabilities reach approximately $1.27 trillion. These school districts collectively educate tens of millions of students and employ hundreds of thousands of teachers, paraprofessionals, administrators, counselors, nurses, bus drivers, custodians, food service workers, and maintenance personnel.

Beyond core instructional programs, large school districts manage an extensive array of mandated and discretionary functions, including: school breakfast and lunch programs, comprehensive special education services (including transportation, therapies, and out-of-district placements), gifted and talented programs, career and technical education, athletics and extracurricular activities, after-school care, summer school, real estate development and maintenance, bus fleet management, technology infrastructure, school safety and security personnel, mental health and behavioral support services, English-language-learner instruction, and large-scale pension plans and other post-employment benefit (OPEB) systems that promise retirement income to employees and, in many cases, lifetime retiree health coverage.

Large school districts have a highly mixed track record of delivering these services while managing their financial position.

This report delivers an objective analysis of financial health across America’s largest state and local governments and school districts. Using Reason Foundation’s unique database, compiled from the audited annual comprehensive financial reports of more than 20,000 local government entities, the analysis applies eight standardized financial metrics to assess both long-term solvency and short-term liquidity. Entities that exceed the objective standard on any metric are awarded a “red flag,” indicating a concerning trend.

A single red flag does not necessarily signal an immediate fiscal crisis, but each one points to structural weaknesses that deserve urgent attention.

Multiple red flags may indicate an entity is in a precarious financial position in both the short and long term.

These eight objective metrics include:

Long-term indicators

• Debt Ratio (total liabilities ÷ total assets): Entities should not hold more debt than assets.
• Unrestricted Net Position: Negative values indicate insufficient discretionary resources.
• Revenues Less Expenditures: Spending in excess of revenues leads to a deterioration of the balance sheet.
• Liabilities per Capita: Liabilities exceeding $10,000 per resident (or $20,000 per student for school districts) become increasingly difficult for taxpayers to service.

Short-term indicators

• Quick Ratio: Entities should hold at least enough liquid assets to cover bills scheduled to fall due over the next year.
• Quality of Receivables: If receivables are valued at greater than 30% of annual revenues, the entity may be experiencing difficulty collecting its assessments.
• Cash as Percentage of Assets: Holding less than 10% of assets as cash leaves governments vulnerable to cash crunches.
• Solvency Ratio (liabilities ÷ annual revenues): If liabilities are greater than double annual revenues, the entity’s ability to issue new debt may be limited, and taxpayers may have difficulty servicing debt.

Reason Foundation finds one large district in the nation triggers seven red flags: Fort Bend Independent School District in Texas. One school district triggers six red flags: The Gwinnett County Board of Education in Georgia.

Thirteen districts trigger either three or four red flags, while 60 large districts trigger either two or three red flags.

Only two large districts trigger no red flags.

For two others, red flags are indeterminate because these districts are blended component units of larger entities and data is insufficient to apportion liabilities to schooling functions.

On average, large school districts trigger 2.4 red flags, which is the highest figure among all levels of government.

School districts exhibiting extreme fiscal stress (six or seven red flags)

Reason Foundation finds Fort Bend Independent School District (ISD) in Texas stands out as the most stressed large district in America because it earns seven of eight red flags.

At the close of the 2023 fiscal year, Fort Bend ISD owed $2.37 billion in total liabilities but held just $2.05 billion in assets, meaning its debts exceeded assets by 15.3%. Its liabilities were 2.35 times greater than its total revenues of $1.01 billion.

After accounting for restrictions on the use of its assets, its unrestricted net position is negative, at -$603 million. On a per-student basis, Fort Bend ISD’s liabilities amount to $29,690. Its position deteriorated over the year, as it was one of only seven large districts to spend more than it took in as revenues. The district was illiquid at the close of FY23, with cash accounting for only 5.0% of its assets.

When considering receivables, the district’s quick ratio covered only 76% of liabilities currently due. Receivables account for only 9.2% of assets, and this is the only metric on which Fort Bend ISD does not trigger a red flag.

The Gwinnett County Board of Education in Georgia has six red flags, Reason Foundation finds.

At the close of FY23, Gwinnett owed $5.80 billion in total liabilities but held $4.08 billion in assets. Its liabilities are 2.03 times greater than its total revenues of $2.87 billion. After accounting for restrictions on the use of its assets, its unrestricted net position is deeply negative at -$2.09 billion. On a per-student basis, Gwinnett’s liabilities amount to $31,918.

The school district spent $66 million more than it took in as revenues in FY23, generating a per-student deficit of $364. At the close of FY23, cash accounted for only 4.9% of the district’s assets. However, the district maintained sufficient liquidity to establish a quick ratio of 1.19 while the district’s $281 million in receivables comprised only 9.8% of its annual revenue.

School districts with high fiscal stress levels (four-five red flags)

The Chicago Board of Education sparks five red flags in Reason Foundation’s report. At the close of FY23, Chicago Public Schools owed nearly three times as much debt, at $30.13 billion, as it held in assets, at $11.06 billion. Its liabilities were 3.41 times greater than its total revenues of $8.84 billion. After accounting for restrictions on the use of its assets, it holds the largest negative unrestricted net position among all school districts at -$17.47 billion. On a per-student basis, Chicago Public Schools’ liabilities amount to $93,669—second only to Davidson County Schools in Tennessee.

The Chicago Board of Education was among the seven large districts to spend more than it took in as revenues in FY23, generating an annual loss of $367 million. Among the district’s reported assets, $2.51 billion is held as receivables. That equates to 28.4% of its annual revenue, allowing the district to miss a sixth red flag narrowly. Despite these challenges, short-term liquidity was healthy, as the district held 10.9% of assets as cash and maintained a quick ratio of 2.45.

Frisco Independent School District in Texas also merits five red flags. At the close of FY23, Frisco ISD owed $3.07 billion in total liabilities but held just $2.65 billion in assets. Its liabilities were 3.28 times greater than its FY23 revenues of $935 million. After accounting for restrictions on the use of its assets, its unrestricted net position is negative at -$157 million.

On a per-student basis, Frisco ISD’s liabilities amount to $45,882. Frisco ISD was among the seven large districts to spend more than it took in as revenues in FY23, although its deficit was small at $554,132. Frisco ISD was very liquid at the close of FY23, with 28.0% of its assets held as cash and a quick ratio of 3.21.

The City and County of Denver School District also earns five red flags. At the close of FY23, Denver public schools owed more debt than it held in assets, at $3.94 billion and $3.11 billion, respectively. Liabilities were 2.06 times FY23 revenues of $1.91 billion. After accounting for restrictions on the use of assets, the district’s unrestricted net position was deeply negative at -$862 million. On a per-student basis, liabilities amounted to $44,791. The district held $277 million in cash at the close of FY23, equating to 8.9% of assets. However, the district maintained sufficient liquidity to pay its bills falling due, with a quick ratio of 1.41.

The Omaha Public Schools system in Nebraska also merits five red flags. At the close of FY23, Omaha Public Schools owed $2.19 billion in total liabilities but held just $1.53 billion in assets. Liabilities were 2.15 times FY23 revenues of $1.02 billion. After accounting for restrictions on the use of its assets, its unrestricted net position is negative at -$537 million. On a per-student basis, Omaha schools’ liabilities amount to $42,327.

The district spent $83 million more than it took in as revenues in FY23, generating a per-student deficit of $1,604—the largest among all large school districts. The district was relatively liquid at the close of FY23, with $389 million in cash and a quick ratio of 2.61.

The Los Angeles Unified School District triggers four red flags. At the close of FY23, LAUSD owed $29.74 billion in total liabilities but held $27.65 billion in assets. Its liabilities are 2.16 times greater than its total revenues of $13.74 billion. After accounting for restrictions on the use of its assets, it had the second-largest negative unrestricted net position among large districts at -$13.23 billion. On a per-student basis, LAUSD’s liabilities amount to $69,512. The district ran a surplus and remained relatively liquid at the close of FY23, with cash accounting for 37.6% of its assets, but long-term solvency remains elusive.

The Miami-Dade County Public Schools system also merits four red flags. At the close of FY23, Miami-Dade owed $6.44 billion in total liabilities but held $6.16 billion in assets. After accounting for restrictions on the use of its assets, its unrestricted net position is negative at -$2.00 billion. On other measures of long-term solvency, Miami-Dade schools perform better. Its per-student liabilities total $19,275, and strong revenues keep its debt-to-income ratio at 1.28. However, Miami-Dade schools demonstrated liquidity challenges at the close of FY23, with cash amounting to just 5.7% of assets and a quick ratio of 0.79.

Other school districts earning four red flags include: Prince George’s County Public Schools in Maryland, Cypress-Fairbanks Independent School District in Texas, Milwaukee Public Schools in Wisconsin, Washoe County School District in Nevada, and Jefferson County School District and Cherry Creek School District in Colorado.

Districts with moderate fiscal stress (two and three red flags)

The Clark County School District, which serves the Las Vegas metro region, earns three red flags. At the close of FY23, the district owed $8.47 billion in total liabilities but held just $8.24 billion in assets. On a per-student basis, the district’s liabilities amount to $27,335. After accounting for restrictions on the use of its assets, its unrestricted net position is negative at -$2.67 billion. Despite long-term debt challenges, the district is highly liquid in the short term. It held 29.5% of its assets as cash at the close of FY23, buoying a quick ratio of 3.44.

The Arlington Independent School District in Texas also triggers three red flags. At the close of FY23, Arlington ISD held more assets than it owed in debt, at $2.13 billion and $1.81 billion, respectively. But per pupil, Arlington ISD is highly indebted at $50,700. Its debt is also 2.09 times its $864 million in annual revenues. Arlington ISD held a negative unrestricted net position in FY23 at -$122 million.

Likewise, the Houston Independent School District in Texas elicits three red flags. At the close of FY23, Houston ISD’s $6.78 billion in assets outweighed its $4.17 billion in liabilities, and it held a positive unrestricted net position of $96 million. Its liabilities were just 1.23 times greater than its FY23 revenues of $3.38 billion. On a per-pupil basis, though, Houston ISD’s liabilities amount to a relatively high $21,942. The district was also the least liquid large school district in America at the close of FY23, holding just 0.18% of its assets as cash (although it held another 31.5% of assets in relatively liquid pooled investment vehicles).

San Diego Unified School District also triggers three red flags. At the close of FY23, San Diego Unified’s $8.61 billion in assets outweighed its $7.86 billion in liabilities. But after accounting for restrictions on the use of some assets, its unrestricted net position became negative at -$1.99 billion. Its debt per student was also very high, at $83,762. Measured against FY23 revenues of $2.81 billion, the district’s debt-to-income level reached 2.80. However, San Diego Unified faced no short-term liquidity issues.

Districts with moderate levels of fiscal stress are the largest category, accounting for 60 of America’s 100 largest school districts.

Districts with low or no red flags (zero or one red flag)

The Baltimore City Public School System leads large school districts in exhibiting no red flags. At the close of FY23, Baltimore City Public Schools owed just $516 million in total liabilities but held $2.45 billion in assets. Its total debt was roughly one-fourth of its FY23 revenues of $2.07 billion. Even after accounting for restrictions on the use of some assets, its unrestricted net position is positive at $330 million. On a per-student basis, Baltimore schools’ liabilities amount to just $7,072. In addition to managing long-term debt, Baltimore schools comfortably exceed short-term liquidity goals, boasting $398 million in cash and a quick ratio of 1.28.

Rutherford County Schools in Tennessee is another example of a large school district that has managed both long-term debt and short-term liquidity without triggering any red flags. The district holds $1.08 billion in assets versus just $143 million in debt. Many restrictions on the use of assets reduce its unrestricted net position to $29 million, but the figure remains positive. The district’s total debt equals less than one-fourth of its FY23 revenues of $628 million. Debt per student is just $2,822. Rutherford County Schools also boasts the healthiest quick ratio among all large school districts, at 7.04.

Conclusions for school district performance

America’s large school districts perform worse financially than all other units of state and local government—but fiscal stress is not inevitable. While school districts like Fort Bend ISD in Texas and Gwinnett County, Georgia, face extreme pressure on both short- and long-term metrics, school districts in Baltimore and Rutherford County, Tennessee, provide a clear counterpoint of short-term and long-term fiscal health.

Most school districts fall somewhere in the middle, showing a range of troubling indicators in either short-term liquidity or long-term solvency. There are few clear geographic trends for the fiscal health of large school districts.

Twenty of the 100 largest school districts are located in Texas, and these districts range from one to seven red flags.

Another 17 of the 100 largest school districts are located in Florida, and these districts range from one to four red flags.

The only clear geographic trend is among the four large school districts in Utah—each of which triggers only one red flag (all for holding questionably high amounts of receivables relative to other assets).

The most common red flag among large school districts is a negative unrestricted net position. Of the 100 most populous school districts, 83 trigger a red flag for this reason.

The second most common red flag is for the 57 districts that hold more than $20,000 in outstanding liabilities per student. Debt ratio is the third most common red flag, as 31 of the 100 most populous districts hold more debt than assets. While these metrics all indicate problems with long-term solvency, the fourth most-common red flag is related to short-term liquidity: 27 of the 100 most populous districts hold less than 10% of assets as cash.

State and local government finances in America: A comprehensive analysis of debt and liquidity

New Jersey and Connecticut are the most financially distressed states

Chicago and New York City are most fiscally stressed cities in the nation

Nassau County and Miami-Dade are nation’s most fiscally stressed counties

Fort Bend (TX) and Gwinnett County (GA) are the most fiscally stressed school districts in the nation

Full policy study: State and local government finances in America: A comprehensive analysis of debt and liquidity