Highly Rated Texas Aims to Improve Its Status as Higher-Ed Powerhouse

DALLAS — Texas will leverage its strong credit to raise its reputation in higher education this week with $152 million of student loan bonds.

The general obligation bonds will include $125 million of new money and $27.73 million of refunding debt.

The negotiated deal is led by book-runner JPMorgan, with Bank of America Merrill Lynch, Southwest Securities and Wells Fargo Securities as co-managers.

First Southwest Co. is financial adviser and Vinson & Elkins is bond counsel.

Ratings of Aaa from Moody’s Investors Service and AA-plus from Standard & Poor’s are expected to help the bonds find a ready market among risk-averse investors.

The high ratings reflect Texas’ low per-capita debt of $612, compared to the national median of $1,066, and its relatively healthy economy, according to Moody’s. The bonds themselves carry a double-barreled pledge.

“While the bonds are state general obligations, they are expected to be self-supporting through loan payments and investment proceeds,” said Moody’s analyst Nicholas Samuels. “Those sources provide ample cash flow to meet debt service needs.”

The bonds will be issued in the name of the Texas Higher Education Coordinating Board, a state agency that oversees all college and university programs in the state, including technical schools. The board determines which public universities are permitted to start or continue degree programs, and it evaluates degrees from other states and other nations for use in Texas. Operations of the universities or systems remain the responsibility of each university or system’s board of regents.

The board also oversees the state’s student loan program. Over the past decade, the board has made about 283,000 loans to nearly 145,000 students. To finance the loans, it issued $1.4 billion of GOs, of which $711 million are outstanding. Amendments to the Texas Constitution allow the board to issue up to $1.86 billion of GOs to finance its student loan program, with no more than $125 million of new-money bonds issued in a single year.

A proposed constitutional amendment and legislation would raise the annual issuance limit to $350 million but keep the total equal to or less than all previously approved debt authorized by voters.

The board will use Series 2011A bond proceeds to provide low-interest loans to eligible students in the state. The Series 2011B bonds will currently refund all or a portion of the outstanding maturities of the board’s Series 2002 bonds.

Student loans are a key element in the board’s efforts to improve Texas’ lagging performance in college degrees.

Under a plan called “Closing the Gaps 2015,” the board is seeking to increase the numbers of state residents enrolled in some form of higher education.

“At present, the proportion of Texans enrolled in higher education is declining,” according to the board’s report. “Too few higher education programs are noted for excellence and too few higher education research efforts have reached their full potential.”

As one of the nation’s fastest-growing states, and one with a high level of immigration from Mexico, Texas presents a paradox in educational data. Though Texas ranks 51st among the states and the District of Columbia in the percentage of residents with high school diplomas, its standing in college attainment was much higher.

According to the Brookings Institution, among states whose residents had some college classes, Texas was 22nd, with 22.6%.

Texas ranked 44th in the percentage of those with associate’s degrees at 6.3%, and 31st with bachelor’s degrees at 25.3%. It ranked 36th in the percentage of residents with graduate degrees at 8.3%.

In Texas, immigration is a key ingredient in the state’s educational levels, according to Brookings. While many cities in the U.S. attract immigrants with high skill levels, those in Texas and the Southwest attract primarily low-skilled workers, according to the think tank’s analysis of 2010 Census data.

According to research by the Pew Hispanic Center, the Hispanic population in 2008 was 36% of the state’s total but represented 46% of births.

Hispanic students now account for 48% of public school enrollment and 65% of pre-K enrollment, according to the Texas Education Agency.

“A large gap exists among racial/ethnic groups in both enrollment and graduation from the state’s colleges and universities,” according to the Texas Higher Education Coordinating Board’s report. “If this is not closed, Texas will have proportionately fewer college graduates. In addition, more higher education programs need to be recognized for excellence, and more higher education research efforts need to reach their full potential.”

Conservative Republicans are firmly in charge of the Legislature and led by Gov. Rick Perry, a possible GOP presidential candidate. Lawmakers in this month’s special session dealt with illegal immigration by outlawing so-called sanctuary cities that refuse to question their residents’ immigration status. The measure, which was opposed by some big-city law enforcement agencies, passed easily after Perry added it to the agenda for the special session.

Texas doesn’t always represent the hardest line on immigration policy. In 2001, it became the first state to authorize in-state tuition for undocumented students, provided that they graduated from a Texas high school. Texas is also one of three states, along with New Mexico and Oklahoma, that allow state financial aid for undocumented students.

Since 2001, at least 30 states have considered legislation to allow undocumented immigrants to receive in-state tuition. Arizona, by contrast, passed Proposition 300 in 2006 requiring undocumented students to pay non-resident tuition and prohibiting those students from receiving any state aid.

A similar bill reversing Texas’ policy failed to pass in the session that ended May 31, and lawmakers were unable to muster sufficient support for a bill modeled on Arizona’s that required police to investigate the immigration status of people they encountered in their routine duties.

Despite its struggles with immigration and education issues, Texas ranks among the best in its fiscal condition. The state has been able to continue attracting new employers during the recession, and sales tax revenue has increased for 14 straight months, according to the state comptroller’s office.

“We expect that Texas’ economy will recover earlier and at a faster rate than most other states, given its continued population growth and relatively low cost of doing business, which we expect will contribute to gradual employment gains in 2011, particularly in the health, education, and services sectors,” wrote Standard & Poor’s analyst Horacio Aldrete-Sanchez.

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