DISD Begins Layoffs to Cover Budget Error, Protect Ratings

DALLAS - Declaring a financial emergency, the Dallas Independent School District is laying off employees in an effort to cover a $64 million budgeting blunder while attempting to protect its lofty credit rating.

With $1.35 billion of recently authorized bond capacity, the troubled district is expected to issue some of that debt when the markets begin to stabilize.

The 2008 bond program will pay for the construction of 15 new schools, including eight elementary schools, four middle schools, and three high schools. Twelve existing schools will receive additions to provide 177 new classrooms.

The bond program will provide $521 million to renovate more than 200 schools. Nineteen new science labs will be built at six existing secondary schools while $20 million would be set aside for kitchen renovations at 16 schools and expansion of lunchrooms at 22 campuses.

Plans for the 2008 bond program also call for $96 million for updated classroom and lab computers, campus-supporting infrastructure, and interactive student technology, as well as classroom presentation devices. The district will spend $14 million to refurbish the regional sports complexes.

The budgeting error arose from payroll miscalculations in the hiring of 750 teachers to reduce class sizes as part of the district's reform effort, Dallas Achieves.

By declaring a financial emergency, DISD can fire employees under contract, including teachers.

Financial officials will provide details on the shortfall and the district's plan for the current budget year at a meeting tomorrow. The board also will evaluate superintendent Michael Hinojosa's performance in a closed session.

The district enjoys a triple-A rating from Moody's Investors Service, AA-plus from Standard & Poor's, and AA from Fitch Ratings. The district's debt also receives backing from the Texas Permanent School Fund for a triple-A rating across the board. But the PSF is near its capacity and will need additional provisions to cover more debt.

The district's fiscal 2007 audit was delayed this year as the district sought approval for the bonds in May. The audit noted material deficiencies in the district's internal control and internal financial reporting policies.

The $64 million budgeting error from fiscal 2007-08 led the district to tap its $120 million reserve fund, adding pressure to the credit rating. So far, none of the rating agencies have indicated any plans to change their stable outlooks for the debt.

Standard & Poor's considers the district's overall net debt levels "moderate" at 4.6% of market value and $3,149 per capita.

"Debt service carrying charges are a moderate 7.9% of governmental expenditures," according to analysts. "Debt amortization is slower than average with roughly 33% of principal retired in 10 years and 73% over 20 years."

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