Longview, Tex., ISD to Hit Market With Half Of $267M Package Passed in Close May Vote

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DALLAS - The Longview, Tex., Independent School District is coming to market Thursday with the first sale from a $267 million bond package narrowly approved in May.

The largest bond referendum in district history won by only 14 votes - with 1,552 for and 1,538 against.

The district will offer $130 million of unlimited-tax school building bonds through a negotiated sale led by RBC Capital Markets.

Officials plan to build five elementary schools and three middle schools, while renovating three other campuses and providing technology upgrades across the East Texas district. Most of Longview's schools are more than 50 years old and one middle school was built more than 80 years ago.

"The average age of our facilities is 48 years old," business manager Eddie Milham said. "We're currently using one facility as a middle school that was built the year Lindbergh flew across the Atlantic. And while it's a wonderful structure, it simply hasn't got what we need to adequately educate our kids. It's simply not feasible for kids, but certainly feasible for adults. So we may enter into a share agreement with a community college or a share agreement with the city for the facility."

He said the district may also convert the 81-year-old structure into administrative offices.

The bonds will be backed by Texas' triple-A rated Permanent School Fund. Milham said district officials are aware of current capacity issues with the PSF and took steps to ensure the bonds would be sold with or without the gilt-edged enhancement.

"We've worked closely with our financial adviser to position ourselves to qualify for the PSF, and we have, but also to position ourselves to sell the bonds even if we didn't qualify," Milham said.

Southwest Securities Inc. is the district's financial adviser and McCall, Parkhurst & Horton LLP is bond counsel.

The underwriting syndicate for this week's sale includes Coastal Securities Inc., First Public LLC, First Southwest Co., Morgan Keegan& Co., and Piper Jaffray & Co.

About $111.2 million of the bonds are structured as serials reaching final maturity in 2036, with the remaining $18.8 million as capital appreciation bonds maturing in 2010 through 2018.

Enrollment within the district has been declining the past few years and is currently about 8,100, but projections show the total student population reaching 9,000 over the next 10 years. Milham said proceeds from the bonds will fund work at each campus in the district, and officials expect to bring the rest of the recently authorized debt to market over the next two years.

"We feel we have a good construction plan outlined that's going to keep a lot of people here in Longview and here in East Texas working, putting money back into the pockets of our taxpayers," he said. "If we didn't do it now and came back in two years, it would cost us another $200 million more, at least."

Reforms enacted during the last regular session of the Legislature lowered the maintenance and operations tax rate schools may levy, limiting a district's fiscal flexibility, and that has many finance officers bemoaning state funding levels.

"The state Legislature put us in this position and it still has to be fixed," Milham said. "The flat dollars we're receiving from the state don't keep up with inflation and is leading to budget cuts. Cy-Fair recently had to cut $234 million from its budget and we've had to make our own cuts, as have most other schools."

The Cypress-Fairbanks Independent School Districtis the third largest and one of the fastest-growing school systems in Texas. In May, voters in the suburban Houstondistrict approved a $806 million bond package for 13 new campuses and land acquisition for 10 more schools, among other needs.

Revamping school funding further is expected to be of high priority when the Texas Legislature convenes again for its regular biennial session in January.

Fitch Ratings assigned a AA-minus underlying rating to the Longview ISD sale due to the district's strong reserves, moderately high debt, and fairly diverse tax base with healthy assessed-valuation growth.

Analysts said there are several large capital investments in development or under construction in Longview, making prospects for continued tax-base growth promising.

"The district's ability to manage expenditures and maintain solid general fund reserves consistent with the current rating category - in light of a declining student enrollment trend - will be integral to maintaining credit quality," according to Fitch.

Standard & Poor's also assigned a AA-minus underlying rating. Analysts said Longview ended fiscal 2007 with an unreserved general fund balance of $24.3 million, or 44% of operations, and expects to end fiscal 2008 with a $1.5 million operating surplus.

Moody's Investors Servicehad not assigned a rating to the issue by press time.

Standard & Poor's analysts said the district's property tax base averaged 6% annual growth the past six years to $3.5 billion for fiscal 2008 from $2.4 billion in 2002, due mostly to residential and commercial development.

The local economy, historically concentrated in oil and gas production, has diversified of late, according to analysts.

Milham said Cisco Systems Inc. recently opened a regional warehouse in Longview and LeTourneau TechnologiesInc. has a $300 million expansion underway.

"The economy of Longview is really cranked up," he said. "Housing prices haven't really fallen off as they have elsewhere and businesses keep coming in."

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