Denver schools to price $450M deal two months after bond approval

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Denver Public Schools on Thursday will price $450 million of new money bonds authorized by voters two months ago.

The school building bonds, pricing through negotiation with book runner RBC Capital Markets, are listed under the name School District 1 of the City and County of Denver.

Fiscal Strategies Group and Public Resources Advisory Group are co-financial advisors.

New bond money would be used to rebuild the Montbello High School campus in Denver.

The tax-exempt general obligation bonds were part of a $795 million proposal approved by voters on Nov. 3.

The proposal covered the cost of adding air conditioning to buildings and classrooms, upgrading science and computer labs, and increasing and upgrading technology for students.

About $130 million would rebuild or renovate a high school on the Montbello campus, which is expected to open in the 2022-23 school year.

Maturing through 2040, the bonds carry underlying ratings of Aa1 from Moody’s Investors Service and AA-plus from S&P Global Ratings and Fitch Ratings. The bonds are backed by Colorado’s Intercept program, which provides ratings of Aa2 from Moody’s and AA-plus from S&P and Fitch.

Strong metrics support a higher underlying rating for the district than is provided by state backing, according to Moody’s.

Analysts cited “substantial growth in the district's service area over the recent past, which has translated to rapid tax base expansion, improving resident wealth levels, and driving positive demographic trends. The growth in both taxable values and revenues has moderated both debt and pension leverage, even as the district has continued to issue new debt for facility needs.”

In the previous bond election in 2016, voters approved $572 million to build and improve school buildings and $56.6 million in operating dollars to support proven initiatives, such as early literacy and social-emotional supports.

The district covers the city and county of 727,211. The district's fiscal 2020 enrollment base is the largest in the state at over 93,800.

“General fund revenue growth is expected to exceed the rate of inflation as the impact of modest enrollment declines are more than offset by inflation-indexed mill levy overrides and anticipated post-pandemic increases in state per pupil funding,” said Fitch analyst Jose Acosta. “The district's independent legal ability to raise property tax revenues is limited by state law, which requires voter approval for tax increases.”

Voters also approved a $32 million mill levy override to increase wages for hourly workers, offer cost-of-living raises for teachers, and fund new mental health professionals and nurses in schools.

The district is preparing to return to in-class teaching after Gov. Jared Polis halted school attendance and an array of other public activities.

In response to the pandemic-induced shutdown, the district imposed a hiring and travel freeze and reduced third-party transportation services. The closure of all campuses for the remainder of the 2019-20 academic year allowed the district to save on utilities, overtime, and supplies, Fitch noted.

To aid districts with coronavirus-related expenses, Polis appropriated $510 million of Coronavirus Relief Funds directly to districts. Districts also received Elementary and Secondary School Emergency Relief funds. DPS received $50 million CRF funds and $15 million ESSER funds.

The fiscal 2021 state budget reduced education funding, resulting in a 5.9% cut in per-pupil funding for the district, equal to $53 million in state equalization payments or 4.7% of fiscal 2021 general fund revenues.

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