After Bitter Split, New Utah District Deals

DALLAS — More than three years after voters approved a bitterly contested split from Utah’s largest school district, the Canyons School District is preparing to issue its first bonds under its new name.

The first $70 million from $250 million approved by voters last November will sell competitively via the Parity electronic bid submission system.

Electronic bids will be received up to 9 a.m. Mountain Daylight Time on Tuesday. The bids will be reviewed at a 5 p.m. school board meeting the same day.

George K. Baum & Co. serves as the district’s financial adviser

The tax-exempt general obligation bonds mature serially from 2012 to 2031 with triple-A ratings through guarantees from the Utah school bond default avoidance program. But the underlying ratings nearly match those, with Aaa from Moody’s Investors Service and AA-plus from Fitch Ratings.

“The Aaa underlying rating primarily reflects the district’s large, mature tax base with favorable household wealth levels,” Moody’s analyst Bryan Quevedo observed. “The rating also incorporates the district’s solid financial operations with ample reserves buttressing the district’s short operating record, and modest debt profile featuring level taxing rates.”

There was some suspense over the ratings because the combined district had been rated triple-A by Fitch. Canyons was part of the Jordan School District until July 1, 2009, when the split was ­completed.

The Jordan system, which dropped from the state’s largest to the fourth-largest district, retained its AAA Fitch rating, analysts confirmed this month.

“To maintain a triple-A after all we went through, I was thrilled,” said deputy superintendent Burke Jolley. “We had a difficult year with our budget, but we’re in a very strong position to deal with whatever the future brings.”

Before the vote to split the district, Standard & Poor’s rated Jordan’s underlying credit at AA-plus in June 2007. That represented an upgrade from the previous AA rating.

The remaining Jordan district, which has used all of its voter authorized debt, is considering a possible election on new bonds this year or next, Jolley said.

Located in southwest Salt Lake County 15 miles south of Salt Lake City, the remaining Jordan district is the western half of the original district, with Canyons to the east.

Canyons was the more established and affluent part of the district with modest growth, while the western section was younger and faster growing.

Promoters of secession advocated separating so that eastern residents whose children had grown up would not have to support the future bond debt for new schools in the western half. The vote to split the district was controversial, because only voters in the proposed new district got to vote.

“There is still some resentment; there’s no doubt about that,” Jolley said.  “It was really a quite close vote. It wasn’t a resounding separation.”

The split cost the original district 44 of its 84 schools and a large part of its property tax base.

Because the two districts could not resolve the division of property, an arbitration panel was called in as prescribed by the state legislation that authorized the secession vote. Existing bond debt was divided according to property values in the two districts.

“I think the arbitration panel did an excellent job,” Jolley said. “They split everything liquid based on student population. We had 59% of the students, so we got 59% of the liquid assets.”

John Larsen, head of accounting for Jordan, said the “accounting nightmare” took a long time to resolve as the new Canyons District got to pick employees from his staff to work in the new district.

“I wouldn’t wish a district split on anyone,” Larsen said. “If they happened to pick someone from my department I just didn’t replace them. But if Canyons picked someone from outside the district, then we were overstaffed.”

Canyons is responsible for $151 million of outstanding debt, which represents the remainder of the district’s 58% share of the former Jordan school system’s bonds. The old debt is expected to be retired by 2022.

All of the district’s voter-approved debt consists of fixed-rate obligations.

The official split also coincided with $16 million in state budget cuts for Jordan, creating a $33 million shortfall. In 2010, the district’s school board announced a $20 million shortfall caused by the loss of taxable property and announced cuts that would slash teacher ranks, increase class sizes, and reduce extracurricular activities.

A Feb. 22, 2010, board meeting turned into a protest, with hundreds of students saying “save our teachers!” Hundreds of students from several Jordan schools walked out of their classes two days later to demonstrate at district headquarters over the announced budget cuts.

After all the turbulence, Fitch analysts conferred a stable outlook on both ­districts.

The Jordan district “has a very manageable debt burden, with rapid debt amortization,” analysts noted.  “And although it expects to issue more debt to address medium-term student enrollment growth pressures, Fitch believes debt levels will remain consistent with the district’s high rating level.”

To service the outstanding debt, Salt Lake County collects the property tax revenue from within each school system’s boundaries and distributes it to the two districts.

The Jordan School District then invoices the Canyons School District for its share of the full debt-service payment.

“Fitch believes that the credit quality of Canyons School District is sufficiently strong to insure that tax payments will be remitted to Jordan on a timely basis,” analysts wrote.

For fiscal year 2010, the two districts agreed to share the debt service costs equally so that they could both levy the same tax rate that year. From fiscal 2011 onwards, the districts revert back to the 42-58% split.

The Canyons Board of Education on March 1 approved a resolution to authorize the issuance of up to $70 million in bonds so that the district could break ground this summer on the first of five building projects proposed in the bond election. The projects are the rebuilding of Midvale Elementary and Butler Middle School, a seismic retrofit for Sandy Elementary, a renovation of Albion Middle School, and the building of a new high school in Draper.

“The bond ratings will help the district secure the lowest possible interest rates on the first bond issuance and ultimately, save taxpayers money,” a district spokesman said.

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