Texas Education News
December 2008
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Galveston ISD Financial Outlook
Is Negative
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Fitch
Ratings Rating Outlook on Galveston Independent School District (ISD), bonds
has been revised to Negative from Stable.
Fitch takes this action in
response to the impact of Hurricane Ike on the district and the current
uncertainty regarding both near-term and longer-term economic and financial
repercussions from the storm. Fitch's primary concerns include the likely drop
in taxable assessed value (TAV) due to property damage, slowed and reduced
property tax collections, the possibility of the storm's displaced families
adding to the existing declining enrollment trend, and the near and longer-term
outlook for future economic activity. Current enrollment is about 80% of the
pre-storm level. Also, district officials estimate damage to facilities,
including clean-up and damage mitigation, at between $55 million and $65
million, with four of 12 schools closed. These concerns are balanced by the
district's substantial current reserve level, near term operational
flexibility, and the expectation that Federal Emergency Management Agency
reimbursements will reduce the district's net costs to a manageable amount.
Damage
totals suggest a significant decline in TAV for fiscal 2010 is likely, which
would force district officials to consider either a property tax rate increase
or expenditure reductions for fiscal 2010, or a combination of the two. TAV for
fiscal 2009 totals more than $4.5 billion, a modest increase of 2.5% from the
prior year. TAV growth had been healthy over the previous five fiscal years,
averaging more than 10% annual gains from fiscal 2004-2008. Ike, which came
ashore at Galveston on Sept. 12-13, flooded approximately 75% of homes and
businesses on the island. Damage was particularly severe on Bolivar Peninsula
just to the east of Galveston, where the vast majority of structures in the
communities of Crystal Beach and Gilchrist were destroyed by storm surge. These
areas also are within district boundaries.
Displaced
residents and property damage also likely will affect property tax collections
for the current fiscal year, thereby impacting cash flow. State law allows
storm impacted taxpayers the option of slowing their tax payment without
penalties, with the final amount due six months after the traditional date and
just one month before the fiscal year-end. Property taxes are the largest
general fund revenue source, comprising more than 80% of total operating
revenues.
Fitch
believes operational risk is largely mitigated for the remainder of fiscal 2009
by the district's sizeable operating reserves. District officials report that
general fund cash and investments at the Aug. 31, 2008 fiscal year-end
(unaudited) totaled roughly $37 million, which is nearly 50% of the original
fiscal 2009 budget general fund expenditures of $80 million. This cushion also
could be used to make up for lower property tax collections for debt service,
if needed. The district's Feb. 1, 2009 debt payment totals nearly $4.6 million,
and the debt service fund presently has roughly $1.4 million. The district
exects to restructure $5 million in debt service due in 2009-2011, moving it
out seven years, offering some near-term relief.
District
staff plans to present a revised fiscal 2009 budget to the school board later
this month, which will include new revenue and expenditure projections. The
original fiscal 2009 budget contained a $6 million drawdown of general fund
reserves, primarily for one-time outlays. Also, the board voted earlier this
week not to re-appraise property values on a pro rata basis for the current
fiscal year, citing minimal financial advantage for taxpayers and a negative
impact on the district's financial profile.
Given
the extent of the damage to Galveston, Fitch expects the recovery process to
take a period of years. The dislocation of residents and business closings are
having an obvious immediate economic impact on the city, and the magnitude of
the long-term economic effect will depend on the number of residents and
businesses that return and the area's ability to regain its sizable tourism
base. Galveston's economy is anchored by tourism, port activities and the
University of Texas Medical Branch (UTMB). Recovery prospects were dimmed
earlier this week when the University of Texas Board of Regents voted to
eliminate 3,800 jobs at UTMB, which is the city's largest employer. UTMB
suffered an estimated $700 million in damages and lost revenue, and this layoff
represents nearly one-half of the pre-storm employment total.
Northside
ISD
Serving
the rapidly growing northwest portion of Bexar County and surrounding areas, the
district continues to record sizeable gains in TAV, rising by a compound
average annual rate of over 13% over the last five fiscal years, including a
nearly 13% increase in fiscal 2009. To accommodate its rapid enrollment growth,
averaging 3,000 students per year, an impressive 70% of voters approved the
largest bond election in district history for $693 million in May 2007. The
favorable prospect for continued, albeit more moderate, tax base growth and the
strong voter support for the bonds moderate the credit impact to the district's
debt profile.
Annual
enrollment growth has averaged almost 5% per year over the last five years
although growth has moderated in the current year. The district's fiscal 2009
enrollment grew by over 2,700 or 3.2% for a total enrollment base of 88,314
students, making it the state's fourth largest district. This high-growth mode
caused the district to seek and obtain nearly $1.8 billion in bond
authorizations since 1998. The May 2007 authorization funds growth-related
needs that include nine elementary schools, two middle schools, and one high
school plus classroom additions, campus renovations, science labs, and
technology and transportation needs.
The
current offering represents the third installment of the aforementioned authorization.
The district's current direct debt burden has risen substantially and now
totals over $3,000 per capita and 4.3% of TAV, due in part to declining amounts
of state support for outstanding debt. Overall debt ratios are also above
average at over $4,800 per capita and 6.9% of TAV. The district's principal
amortization rate is slow at 31% in 10 years, but is not unusual for rapidly
growing districts. The May 2007 bond authorization is projected to increase the
district's debt service tax rate by a modest $0.045 per $100 TAV.
Despite
pressures associated with consistent enrollment growth, financial performance
has been solid as evidenced by undesignated fund balances of 10% or better of
expenditures since fiscal 1995, which exceed management's goal of one month of
expenditures. For fiscal 2007, the district posted a large $22 million general
fund operating surplus due to lower than budgeted expenditures. The district's
growing financial cushion is impressive, comprised a $48.6 million undesignated
fund balance and $56 million in additional reserves, totaling $104 million or
19% of spending in fiscal 2007. Notably, the district has set aside $52 million
in additional reserves for the opening of new schools, to purchase furniture,
equipment, and for pre-design costs which it will draw down over the next three
years.
Fiscal
2008 is projected to use $18 million of the designated general fund reserves
for the opening of three new schools but the district's financial cushion
remains solid at $97 million. The fiscal 2009 budget projects a modest
operating surplus and includes the adoption of the optional $0.04 per $100 TAV
maintenance tax levy allowed by law without voter approval. These 'super
pennies' are projected to generate $22 million in additional local and state
revenues and will help offset over $19 million in new growth expenditures,
including the opening of three new schools, plus 4.4% teacher pay hikes. Aided
by year-end budget sweeps and the use of new school designations, the district
projects it will maintain strong year-end reserves through fiscal 2010.
Bryan
ISD
Bryan
ISD is located in Brazos County, approximately 90 miles equidistant from
Houston and Austin. The district serves the city of Bryan, which is part of the
larger College Station-Bryan metropolitan statistical area (MSA), and a
surrounding, predominately rural 459-square-mile area. With its roughly 55,000
students, the large, flagship campus of the Texas A&M University System in
College Station drives much of the local economy. The dominant governmental
sector and large university student work force have contributed to
below-average income levels, cost-of-living, and unemployment rates. While the
tax-base composition is weighted toward the residential sector, taxable
assessed valuation (TAV) has made gains of almost 10% annually over the past
five years, and continues to outpace student enrollment growth. The district
has experienced sporadic enrollment growth with modest gains overall that
average not quite 2% annually for the past five years with 1% growth
anticipated annually over the near term. Now at slightly more than 15,000
students, district officials attribute better than anticipated enrollment gains
so far in fiscal 2009 to both facility and program enhancements.
Audited
results for fiscal 2007 continued the district's trend of positive financial
performance. Liquidity remained substantial with cash and investments totaling
$31.4 million, equal to 112 days of cash on hand. While unreserved levels
declined slightly from the prior year due to substantial pay-go spending, the
district recorded a very solid unreserved general fund balance of almost $25
million or 26% of spending in fiscal 2007, which still met the district's
operating, unobligated reserve policy amount of at least three months of
expenditures. Unaudited results for fiscal 2008 point to the use of $2 million
in reserves for primarily one-time, capital expenditures. The fiscal 2009
budget was reportedly adopted with conservative revenue and enrollment
estimates that included a drawdown of $3 million from general fund reserves for
the opening of two new schools and 3% salary increases on average. District
officials indicate fiscal 2009 expenditures are primarily on target with budget
projections and that BISD will most likely seek an additional, discretionary
operating tax levy from voters in October 2009.
The
current offering represents the first issuance of a $37.5 million authorization
approved in May 2008 by a strong percentage of voters. Under conservative
growth assumptions, issuance of the entire authorization is not anticipated to
have an impact on the existing debt service tax rate. This portion will be used
primarily for renovation and expansion of existing elementary school
facilities. Roughly 25% of the district's debt service is supported by the
state due to the district's low property wealth. Consequently, direct debt
ratios are moderate, although overall debt levels are moderately high,
primarily due to the overlapping debt of the city of Bryan. The next and final
new money issuance from this authorization is anticipated at not quite $10
million in 2009. District officials anticipate this will meet facility needs
until 2012, at which time the district expects to approach voters with an
additional bond package request. Amortization is below average; in 10 years,
approximately 40% of principal will be retired.
El
Paso ISD
The
district, the seventh largest school district in the state, encompasses over
250 square miles and serves the majority of the City of El Paso. The area's
economy is based on international trade and manufacturing, copper mining, and
ore smelting. Stability is also provided by the large military presence (Fort
Bliss and Biggs Army Airfield) and educational concerns (the University of
Texas at El Paso). As a result of base realignment and overall expansion of the
armed forces, Ft. Bliss is expected to receive 27,000 additional troops with
the majority of school age troop dependents enrolling in the district. By 2011,
the increased troop strength is expected to boost district enrollment by about
9,700 in military and civilian personnel dependents.
The
district's tax base is diverse with taxable values increasing again after years
of stagnant growth. Taxable assessed valuation (TAV) grew by a notable 16% and
13% in fiscal years 2007 and 2008, respectively, increasing by $3.1 billion
over that period. For fiscal 2009, TAV growth moderated to a still strong 6.7%
increase over the prior year, or nearly $900 million. The ongoing $5 billion
expansion of Ft. Bliss has spurred the development of large master planned
communities as about 65% of the additional troops are expected to live
off-base. Furthermore, the relocation of air cavalry and armored aviation units
to Ft. Bliss is expected to attract high-technology companies for both services
and research and development. The city's unemployment rate has trended downward
in the last decade but is beginning to experience some inclines over the last
six months. For August 2008 the city's 6.1% unemployment rate was higher than
the states 5.1% and on par with the national unemployment rate.
The current offering is a refunding for a minimum of 3.5% present value savings. The district has recently sold its final installment of a $230 million bond program approved by 53% of voters in May 2007, mostly for new schools and classroom additions. This was the second key authorization approved by voters since 2003, allowing the district to address the majority of its total capital needs, including its most pressing deferred maintenance needs. The tax rate impact from this authorization is projected to be modest under reasonable TAV growth assumptions.
The
district's direct debt profile remains modest at under $1,000 per capita and
2.6% of TAV after adjusting for state support. Overall debt ratios are now
moderately high as a percentage of TAV at 6.0% but moderate on a per capita
basis at under $2,300. The district's principal amortization rate was
previously rapid but has trended down to a below average rate of 38% in 10
years.
The
district's financial performance has improved notably since a new board and
administration implemented improved cost controls and budget cuts, leading to
operating surpluses over the last two fiscal years. Fiscal 2006 posted a $7.6
million general fund surplus, increasing its undesignated fund balance to $42.3
million or 10.8% of spending. Additionally, fiscal 2007 results posted a large
$20.9 million operating surplus and a nearly 15% reserve, due largely to
accruals and the rolling forward of purchase orders and unspent funds. However,
projected fiscal 2008 operating results point to a large operating deficit due
mostly to a sizeable differential between projected and actual average daily
attendance (ADA) associated with shifting deployment patterns at Ft. Bliss. The
proposed fiscal 2009 operating budget is balanced based on an ADA surge of
1,300 or 2.4%, due mostly to the arrival of military troop dependents, plus
natural growth and new attendance initiatives. Officials report that actual
enrollment has already surpassed the expected enrollment levels for fiscal
2009, thus a favorable budget variance in state revenue is anticipated.