Bonds keep coming even as some big Texas school districts shrink

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Some of the largest school districts in Texas are coping with falling enrollment amid growing bond programs.

In the San Antonio Independent School District, enrollment averaged an annual decline of 2% over the past five years. Enrollment totaled 48,720 students in 2019, a decline of 3.8%.

Voters in Texas routinely approve billions of dollars in local school bond measures on the two dates set aside annually for such elections, and passed most of the school bond measures in Tuesday's election.

Despite the shrinking enrollment, San Antonio ISD officials are preparing to place a bond proposal on next year’s ballot after identifying $2 billion of maintenance and renovation needs at 90 schools serving 49,000 students.

Voters in 2016 showed strong support for a $450 million bond proposal, despite a projected increase SAISD’s property tax rate for debt service over five years by 12 cents per $100 in assessed value. In the same election, voters also approved a 13-cent-per-$100 increase to the part of the property tax that funds day-to-day school operations.

“During fiscal 2018, the district saw a significant loss of revenue due to enrollment declines but elected to maintain program offerings to improve academic programs,” Moody’s analyst Sarah Jensen noted in a July report. “The sale of property for approximately $32 million enabled the district to be balanced with a slight surplus in general fund reserves at year-end. For fiscal 2019, the district did cut 135 teaching positions through a reduction in force to right size operations, though enrollment declines again were more than anticipated.”

While Moody’s assigns an underlying Aa2 rating to San Antonio ISD, the district’s bonds, as is standard with local GO school bonds, earn triple-A ratings through a guarantee from the Texas Permanent School Fund.

In neighboring South San Antonio ISD, administrators recently reopened three elementary schools after student protests over closures attributed to falling enrollment.

About 80 miles to the north, Austin Independent School District has recorded six years of falling enrollment, even as population increased. The 2018 loss of 1,574 students was the largest in six years. The district's estimated total population rose to 1.297 million in 2019 from 1.17 million in 2015, according to its most recent official statement.

Studies district officials reported to the school board said that more than half of the 17,000 students who have left Austin ISD between 2013 and 2017 transferred to other Texas public school districts, particularly those in the suburbs.

The falling enrollment did not undermine taxpayer support for the district, with 72% of voters approving $1.1 billion of bonds in 2017.

In Dallas, the city’s population is growing as enrollment in Dallas ISD is falling. The state’s second-largest district is considering closing 22 schools, a decision that will come after October tornadoes heavily damaged three schools in one north Dallas neighborhood. That included Thomas Jefferson High School, which was undergoing bond-funded renovation when the tornado struck.

Amid the challenges, Dallas ISD is considering a $2.5 billion bond proposal in 2020, which would rank as the largest in the district’s history. Voters overwhelmingly approved a $1.6 billion bond for construction needs in 2015 without changing the tax rate.

Even school districts in Dallas’ fast-growing suburbs have seen enrollment declines. Templeton Demographics told the Lewisville Independent School District north of Dallas in May that the district had lost 583 students in the last five years and would see another 500-student drop in the next school year.

In 2017, voters approved a record $737 million bond proposal.

Texas’ largest school district, Houston ISD, is not exempt from falling enrollment. Facing an imminent takeover by the state, HISD has struggled with lower numbers, particularly since Hurricane Harvey struck the city in August 2017. In 2012, voters approved $1.64 billion of bonds for school maintenance and construction.

"Hurricane Harvey significantly affected the district's financial operations and reserves have been used to offset the gap between revenues and expenditures," S&P Global Ratings analyst Kristin Button pointed out in a September report. "Enrollment declined by about 4,400 students in fiscal 2019 with approximately 1,800 displaced by the hurricane and the remainder choosing to attend charter schools. The total student enrollment for 2019 was 209,772. The 2020 budget includes a decline in enrollment to 208,246 students."

Despite those hardships, HISD retains its AA-plus underlying rating from S&P with a stable outlook.

When school districts lose students, state funding goes with them. Last year, Austin ISD lost $11.6 million in state school funding. That worsened a financial problem that resulted from payments the district makes to the state under the so-called “Robin Hood” formula in which property wealth districts share local property tax revenue with those elsewhere in the state deemed “property poor.” Austin ISD last year shared $669.6 million, an increase of $123 million, and 42% of its overall budget.

“The majority of districts we rate that report capital assets improved the value of their facilities between 2010 and 2018, a notable achievement since declining student populations affect state aid,” Moody’s noted in a report on national school demographic trends published Friday.

“Some districts with shrinking 18-and-under populations decide to consolidate facilities,” Moody’s said. “Over time, this approach allows these districts to align facilities with their new enrollment levels, and realize operational efficiencies. This approach, however, can lead to a significant increase in debt as consolidating districts reconfigure existing or build new facilities.”

Nationwide, between 2010 and 2018, the tax base of districts with growing school-age populations had a median compound annual growth rate of 3%, compared with 1.2% for districts with shrinking school-age populations, Moody’s said.

“Most districts with diminishing capital asset values are positioned to meet their facilities needs without significantly weakening their credit quality,” analysts said. “Among the 764 districts — both growing and shrinking — with declining net capital asset values, 95% experienced a modest compound annual decline of less than 5% between 2010 and 2018.”

“These districts have gradually lowered their debt burden and strengthened their reserves since 2010,” they added. “The debt burden of districts with declining net capital assets steadily fell between 2010 and 2018, adding capacity should these districts choose to issue debt to finance capital needs.”

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Public school funding School bonds Budgets Austin Independent School District, TX Dallas Independent School District Houston Independent School District Texas