Texas' Growing Comal School District Readies $150M GO Issue

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DALLAS The fast-growing Comal Independent School District near San Antonio next week will issue the first $150 million of general obligation bonds from a $206 million authorization.

The bonds will carry triple-A ratings through their backing by the Texas Permanent School Fund. Moody's Investors Service upgraded the district one notch to Aa3 from A1. The district carries underlying ratings of A-plus from Fitch Ratings.

The underwriting team, led by First Southwest Co., includes M.E. Allison Co., RBC Capital Markets, Southwest Securities, and Estrada Hinojosa & Co. Samco Capital Markets serves as financial adviser, with Fulbright & Jaworski LLP as bond counsel.

Coming three years after a $189 million authorization, the 2008 bonds won 70% approval from voters. The remaining bonds from the new authorization are expected to be issued in fiscal year 2010. The district carries about $345 million in outstanding GO debt.

Headquartered in the historic German settlement and Comal County seat of New Braunfels, Comal ISD is one of the fastest growing school districts of its size in the state, according to the Texas Education Agency. About 1,000 new students register in Comal ISD schools each year, with enrollment projected to hit 20,000 students by 2012.

Proceeds from the upcoming issue will finance expansion of Canyon and Smithson Valley high schools, build three elementary schools, expand the four existing middle schools, upgrade technology, purchase land for schools, and begin capital projects on school grounds across the district.

The new debt will not increase the tax rate used to pay the debt service portion of the district's budget, which is set at 27 cents per $100 valuation, officials said. In Texas, school budgets are divided into maintenance and operations, whose tax rates are capped by the state, and debt service, which uses a different formula.

Comal ISD is one of the early issuers after Texas voters approved more than $7 billion of school bond proposals on May 10, despite signs of a weakening economy. The Dallas Independent School District topped the list with a $1.35 billion proposal, but issuance is held up by delayed audit results.

Other recent or upcoming deals include the WacoIndependent School District's $135 million issue, the AustinIndependent School District's $100 million, San Antonio's Northside Independent School District with $90 million, and the Houston-area Conroe Independent School District's $85 million.

Located about 20 miles north of San Antonio, Comal ISD serves a predominantly rural 585-square-mile area primarily in Comal County and extends to small portions of Kendall, Hays, Guadalupe, and Bexar counties. Enrollment has grown at a steady rate averaging 6.5% annually in the last five fiscal years to reach 14,450.

About two-thirds of the district's residents commute to San Antonio or Austin, according to Fitch analysts.

Amid the growth, "conservative budgeting practices and financial management have enabled the district to maintain healthy financial reserves, despite ongoing enrollment pressures," analysts noted.

From fiscal years 1997-2002, general fund balances exceeded 20% of total expenditures and transfers out. Due to numerous one-time capital outlays, general fund reserves were drawn down below the 20% level in fiscal years 2003 and 2004.

By the close of fiscal 2007, the district reported a $45 million unreserved general fund balance, equivalent to 47% of total expenditures and transfers out and well within the districts goal of maintaining three to four months of spending. The district expects to add $4 million to fund balances for fiscal 2008.

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