Regional News

Texas' Cedar Hill School District Hits Market After 2-Notch S&P Upgrade

DALLAS - The Cedar Hill Independent School District in Texas sold $5.2 million of unlimited-tax refunding bonds yesterday after receiving a two-notch upgrade to AA-minus from A by Standard & Poor's.

Officials initially planned to come to market next week but expedited the sale following the upgrade, which analysts said reflects the district's continued economic expansion and strengthening financial performance.

"It's going to make quite a difference in what we we're expecting to save," said chief financial officer Mike McSwain. "One projection I'd presented to the board showed savings of about $1.7 million over the life of the bonds and now that figure looks like it'll be a little over $3 million, which is significant savings for the district."

Morgan Keegan & Co. was sole manager for the negotiated issue.

About half the debt is premium capital appreciation bonds maturing in 2010 to 2013 and 2016 through 2023, with the other half structured as current interest bonds maturing in 2024 and 2025. Yields ranged from 1.55% in 2010 to 4.45% with a 4.375% coupon in 2025.

First Southwest Co. is the financial adviser to the district, which is in southwest Dallas County about 20 miles from downtown Dallas. Vinson & Elkins LLP is bond counsel.

McSwain said the higher rating precluded the need for insurance on the bonds and "makes things a lot easier for us in the future."

Standard & Poor's said the district's assessed value averaged 8% annual growth the past five years to $2.95 billion for fiscal 2009 from $2.13 billion in 2005. The district is home to a total population of about 46,600 and enrollment is about 8,100 in 13 schools.

Officials managed to increase the unreserved general fund balance to $14.4 million this year after running a deficit at the start of the decade, according to analysts.

Fitch Ratings did not rate the new issue but assigns an A-minus to the district's outstanding debt.

Cedar Hill ISD has no authorized but unissued bonds and McSwain said officials are considering an election for May or November of next year. He said at least one new elementary school is needed, as well as expansion of another elementary campus with roofing and heating and air conditioning improvements necessary across the district.

Last fall, officials sought to raise the district's tax rate to $1.17 per $100 of assessed valuation from $1.04, but voters rejected the October referendum.

"The thing that killed us the most was the timing of it," McSwain said. "The economy collapsed less than two weeks before the vote."

During a special session in the spring of 2006, the Texas Legislature enacted HB 1 lowering the tax rate school districts could levy in what was hailed one of the largest tax breaks in state history.

The legislation mandated districts lower their maintenance and operations tax rate from a maximum of $1.50 per $100 of assessed value to $1.33 for the 2006-07 school year and then to $1 per $100 the following year. School administrators have the discretion to rollback the rate to $1.04, but need to get voters to pass another increase to $1.17.

Many school officials across the state bemoaned the system, saying it places too much reliance on the district to raise taxes to cover expenses. Meanwhile, enrollment growth and aging facilities require districts to ask voters for hundreds of millions in bonding capacity for new schools. More than 90% of the district's immediately raised their rate to $1.04 per $100 in the fall of 2006, according to the Austin-based Center for Public Policy Priorities.

The latest regular session of the Legislature ended earlier this week without a new property-tax funding formula for the state's 1,038 school districts.



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