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Perspective published on November 17, 2017

Grading Inclusiveness in Public School Districts

In a time of heightened awareness of important social and environmental issues, we consider how educational inequality can feed into long-term income disparity across the U.S. The correlation between educational and income inequality is an important one. A poor educational system can lead to a cycle of limited job opportunities, poor wage growth, reduced economic prosperity and less funding for schools, creating ongoing educational and wage inequality that impacts credit fundamentals of both public school districts and the communities in which they are located.

The potential systemic issues stemming from educational inequality underscore the importance of evaluating inclusiveness and social progress in public school districts. As part of our efforts to continuously strengthen our research, in early 2017 we took a deep dive into the key metrics that could potentially capture a school district’s performance relative to the principles of inclusive growth and social progress.

To inform our analysis, we considered our philosophy on inclusiveness for cities, counties and states. As explained in our recent ESG newsletter article, Betting on Social Progress, we believe inclusiveness is an important driver of long-term economic stability and prosperity in communities. Issuers that embrace the principles of social progress, we believe, are likely to exhibit stronger long-term creditworthiness, which in turn leads to greater opportunity and lower risk for investors.

Our updated methodology for evaluating school districts prioritizes metrics that we think help us identify and reward districts that can achieve “more with less” and that aim to promote social progress and ensure long-term economic and social stability. Examples of new metrics include the below:

First, we aim to identify and reward school districts in which students tend to outperform peers with comparable family socioeconomic status who attend other schools.1 Strong performance on this metric indicates a commitment to excellence regardless of resources available and employment of competent teachers, administrators, and other staff. Our municipal credit research finds that having a strong management team is not only good for student education and teacher retention but also for bondholders, who can rely on these management teams to navigate periods of fiscal stress.

Second, our framework evaluates the extent of support for teachers. We believe that new and experienced teachers who receive adequate professional development and support are more apt to help students achieve excellent academic results and reach their full potential – in both their academic and their professional lives. Our assessment of teacher support integrates policy and regulatory research from the New Teacher Center along with an index of each state’s financial support for teachers.

Lastly, in line with our city, county and state frameworks, our school district framework prioritizes the measurement of a community’s diversity, which is one way to measure the community’s level of inclusiveness. In school districts, we think that community diversity matters because students who are exposed to a multitude of cultures, backgrounds and perspectives will be better prepared to contribute in an increasingly global economy.

At bottom, we believe that our updated school district framework helps us identify and reward districts that are delivering strong performance both in terms of societal well-being as well as economic prosperity, which then bolsters credit fundamentals.

Overall, school performance can have a broad and significant impact on state and local credits. Well-performing schools can be an important differentiator when new families are deciding where to live. A strong school district makes an area more desirable and attracts new residents into a community’s tax base. In turn, population growth improves property values, stimulates tax revenue growth and has a broader positive impact on the local economy. This enhances a municipal issuer’s ability to repay their bonds, and reduces risk for investors.

We think that inclusive growth matters for the long-term success of school districts, and that our new framework will help us better understand the key drivers of this success. Over time, we will continue to seek out innovative ways to capture, assess and report the progress of the issuers we cover - and to share their inspiring stories.


[1] Sean F. Reardon, Demetra Kalogrides, Ken Shores, “The Geography of Racial/Ethnic Test Score Gaps,” Stanford Center for Educational Policy Analysis. January 2017.


DISCLAIMER: The opinions and views expressed are those of Breckinridge Capital Advisors, Inc. They are current as of the date(s) indicated but are subject to change without notice. Any estimates, targets, and projections are based on Breckinridge research, analysis and assumptions. No assurances can be made that any such estimate, target or projection will be accurate; actual results may differ substantially.

Nothing contained herein should be construed or relied upon as financial, legal or tax advice. All investments involve risks, including the loss of principal. An investor should consult with their financial professional before making any investment decisions.

Some information has been taken directly from unaffiliated third party sources. Breckinridge believes such information is reliable, but does not guarantee its accuracy or completeness.

Any specific securities mentioned are for illustrative and example only. They do not necessarily represent actual investments in any client portfolio.