DALLAS — The Dickinson Independent School District near Galveston will go to market Monday with a $54.5 million offering of new-money general obligation bonds in a deal that will finish off an $85 million authorization approved by voters last year.
“We issued $30.5 million from that authorization last year, and now we’re ready to sell the rest,” said Tom Mooney, assistant superintendent for administration.
Terrell Palmer, a senior vice president with First Southwest Co. who serves as the district’s financial adviser, said the sale of the debt has been accelerated.
“We wanted to lock in construction costs — we’ve seen a lot of inflation in those costs over the last two years,” Palmer said. “We decided to accelerate the schedule of the issuance so that we could move ahead with some of this work.”
Proceeds from the bonds will finance a new elementary school, an intermediate school that will serve students in fifth and sixth grade, and a junior high school for students in grades seven and eight.
The bond proceeds will also finance a new agricultural facility for students studying agricultural sciences, a new transportation facility, and provide money for land acquisition.
“We know we’ll have to build more schools in the future, so we are putting land into inventory now,” Mooney said.
UBS Securities LLC will be the lead manager for the negotiated deal. Co-managers on the deal are Estrada Hinojosa & Co., RBC Capital Markets Inc., Southwest Securities, Coastal Securities, and Morgan Keegan & Co.
The district’s bond counsel is Vinson & Elkins and Andrews & Kurth will serve as underwriters’ counsel for the transaction.
Wells Fargo Bank is the trustee for the deal, which goes to market with the triple-A guarantee of the Texas Permanent School Fund.
“We also have just received an upgrade from Moody’s Investors Service that puts the district’s underlying credit in the A range,” Palmer said. “We are very excited about that.”
Moody’s rates the credit A3, up from its former rating of Baa1. Standard & Poor’s rates the bonds A-minus. Fitch Ratings does not rate Dickinson ISD.
The fixed-rate issue reaches final maturity in 2032.
“We have a little bit of capital appreciation bonds on the 2013 and 2014 maturities to generate premium,” Palmer said. “It’s really a very straightforward deal.”
He said the market has been “a little sloppy,” with some market participants waiting to see whether a predicted increase in the federal funds rate to as much as 5.5% from 4.5% will occur.
“It’s still pretty steady on the long end, and that’s where most of these bonds are,” Palmer said of the Dickinson issue.
The district was one of the first in the state to reach a mandated maintenance and operations property tax cap of $1.50 per $100 of assessed valuation.
“We’ve been running on lean for 12 years,” Mooney said.
Dickinson’s interest and sinking fund tax, which finances debt service obligations, is expected to top out at 40 cents per $100 of assessed valuation during the lifetime of the current issue.
Texas school districts must be able to prove at the time of issuance that all debt can be repaid with an I&S tax rate of no more than 50 cents per $100 of valuation. However, if at some time during the lifetime of outstanding debt a district’s property values fall, districts may increase their I&S tax as much as necessary to meet all debt service obligations.
Dickinson ISD, which serves a current enrollment of 7,258 students, has experienced growth of about 200 students per year over the last few years, but officials say that growth could escalate more steeply if planned development in the area is completed.
Dickinson is a Chapter 42 district, which Texas school finance parlance means one whose property values fall in the middle of the state’s wealth indexes. As such, Dickinson does not have to share property tax revenue with poorer districts, as property-wealthy schools are required to do. However, it also does not receive shared property tax revenue — or any significant level of state funding — as would a property-poor district.
“It will be interesting to see what the Texas Legislature does in this special session we’ve been expecting,” said Mooney, referring to an upcoming gathering of lawmakers to consider the school finance imbroglio.
The Texas Supreme Court in November ruled that the $1.50 per $100 of valuation property tax cap is illegal, calling the capped levy a de facto statewide ad valorem tax because currently most districts in the state have either reached the cap or are within pennies of it. As such, the court ruled, there is no meaningful local discretion in setting property tax rates, a violation of the state constitution.
The court ordered the Legislature to correct the problem by June 1, and Gov. Rick Perry has said that he expects to call a special session in April or May to reduce the tax rate and provide additional funding to make up the lost revenue. Although no agenda has yet been set for the session, some pundits believe that the session could include a call for tax reform.
The Texas Tax Commission, appointed by the governor to review tax options for the state and chaired by former Comptroller John Sharp, is expected to propose a broad-based gross-receipts business tax in the 1% range that would provide deductions for companies that hire additional employees or build facilities in Texas.
The current business franchise tax, levied at the greater of 4.5% of a company’s net income or 0.25% of its capital, is riddled with loopholes that allow companies to avoid paying it. Only about one out of 16 Texas businesses pay the franchise tax.
