Three Texas School Districts Make the Double-A Grade

120709del.jpg

DALLAS — Three large and growing school districts in Texas made significant leaps into the double-A leagues last week with Standard & Poor’s upgrades.

Rising two notches from A to AA-minus, the Del Valle Independent School District in Austin’s southeast suburbs reached the comfort zone of risk-averse investors. 

With the Texas Permanent School Fund sidelined by capacity limits this year, districts have had to issue without its triple-A backing.  Some districts rated below the double-A minus level have postponed bond deals until market conditions improved.

DVISD has never issued bonds without PSF backing but may do so with $26 million of authorization remaining from a 2007 vote, said Kelly Crook, assistant superintendent for business and finance.

“We’re hoping with the PSF still up in the air, we’ll be able to go out without it,” she said. “We have never gone into the market without PSF, but we’ll have to because we have a school to build.”

Crook said the upgrade “literally came out of the blue,” potentially changing the district’s financial strategy. She said she will meet with the district’s financial adviser Dec. 16 to discuss plans.

With its headquarters just six miles from downtown Austin, DVISD’s enrollment of 10,000 students has grown recently at a 5% average annual rate. Tax base growth has averaged 8% annually over the past five years, but remains vulnerable to downturns in the technology sector, analysts noted.

DVISD’s only other rating is an A from Fitch Ratings. Fitch affirmed the district’s rating last month.

Also moving up to the AA-minus rating were the Temple Independent School District, a large district halfway between Austin and Waco, and the Harlingen Consolidated Independent School District in the Lower Rio Grande Valley.

Temple made a one-notch move from A-plus.

“We believe Temple Independent School District’s financial position has historically been very strong,” said analyst Lauren Spalten. “At fiscal year-end 2009, the unreserved general fund balance totaled $15.4 million, or 25% of expenditures, which we consider very strong. The unreserved general fund balance has remained above 20% of expenditures in each of past eight audited fiscal years.”

Temple ISD in September also received a rating of “Superior Achievement” under the Texas’ Schools FIRST financial accountability rating system for the fiscal year 2007-08 according to Kallen Vaden, executive director of finance. The rating system assigns one of four financial ratings to Texas school districts. Temple ISD scored the maximum 85 points on the scale.

Harlingen CISD near the Texas-Mexico border also moved up one notch from A-plus.  Spalten said analysts considered the district’s financial position “very strong.”

In other ratings action, Standard & Poor’s boosted the Hamilton Independent School District three notches from BBB to A based on strong financial performance. Hamilton ISD is based in the town of Hamilton, 85 miles southwest of Fort Worth.

The agency also upgraded the Era Independent School District three notches from BBB-plus to A-plus based on its ability to maintain reserves of at least 33% of expenditures since 2003. The small, rural district is between the Dallas-Fort Worth area and the Oklahoma border.

Standard & Poor’s removed Lancaster Independent School District from its negative watch list, leaving the suburban Dallas district’s rating at BBB.  Lancaster, which has failed to win passage of school bonds in recent years, has sought to correct its chronic budget deficits with implementation of new accounting policies and procedures, said Standard & Poor’s credit analyst Sarah Smaardyk.

For reprint and licensing requests for this article, click here.
Texas
MORE FROM BOND BUYER