DALLAS – One of the fastest-growing school districts in Texas is breaking ground as the first to issue so-called “green bonds” for construction using environmentally preferred techniques and materials.
The Fort Bend Independent School District in Houston’s southwest suburbs has designated $52 million of the $99 million school construction bonds going to market April 12 as green bonds that will finance construction of three elementary schools using Leadership in Energy and Environmental Design (LEED) methods.
U.S. municipal green bond issuance has grown to $7.2 billion in 2016 from $4.2 billion in 2015, allowing more public entities to finance capital construction in a way that supports environmentally responsible investment. Other issuers in the state that have taken advantage of the green bond market are the University of Texas and other higher education credits. Outside Texas, prominent green bond issuers include the Massachusetts Institute of Technology (MIT) and Indiana University.
“Texas’ population is booming and we need to build new, state-of-the-art schools to continue to provide the highest quality education for our children,” said Keith Richard, managing director and head of the Texas Region for Siebert Cisneros Shank and Co.
“As municipalities plan ahead, it must be done in a way that helps protect and preserve our environment for future generations who will benefit from these new schools,” said Richard, who as lead banker is working with Fort Bend ISD’s financial advisor Raul Villasenor, managing director for First Southwest Co., and Jonathan Frels of the law firm Bracewell.
Co-managers on the deal are Jefferies and Loop Capital Markets.
The bonds carry triple-A ratings through the Texas Permanent School Fund’s guarantee with underlying ratings of AA-plus from S&P Global Ratings and Fitch Ratings.
The green bonds, designated as Series A, reach final maturity in 2042.
Proceeds from the sale of the Green Bonds will finance Donald Leonetti Elementary School in the Sienna Plantation subdivision, James C. Neill Elementary in the Harvest Green subdivision, and James Patterson Elementary in Grand Vista, all in Fort Bend County, one of Texas’ fastest growing areas, located about 20 miles southwest of Houston.
After voters approved the 2014 Bond Program, the FBISD Board of Trustees adopted its Elementary School Education Specifications, which state that the district’s future elementary schools should be designed to LEED/high-performance standards and obtain LEED certification.
The three new elementary schools opening for the 2017-18 school year will include green features such as building materials with higher levels of recycled content, energy efficient HVAC equipment, and heat reducing features such as light-colored building materials and green space.
They will open at the start of the 2017-2018 school year.
In its preliminary official statement, the district notes that there can be no assurance that the planned schools will achieve LEED status, only that the board will seek the designation.
“Failure to achieve any particular LEED certification level will not constitute a default,” the POS states.
“Furthermore, the district does not intend to obtain third party verification on the environmental credentials of the Green Bonds.”
In support of its goal for the new schools, the district cites previous success with the Carolyn and Vernon Madden Elementary, which opened in August 2015 and obtained LEED certified status. The district built Anne McCormick Sullivan Elementary, which opened in August 2016 and has been submitted for LEED certification, a process that can take more than a year.
While enhancing the district’s environmental profile, the green bonds also allow Fort Bend ISD to target a broader category of investors, said FBISD chief financial officer Steve Bassett. In essence investors can buy bonds for the showcase schools, which could hold some special appeal to the local market.
"Our new schools include state-of-the-art energy-saving features that will help us save on operating costs,” said FBISD Superintendent Charles Dupre. “Issuing these green bonds demonstrates our conservative approach to managing our building program.”
The district currently enrolls 74,500 students on 75 campuses and is expected to increase to 85,000 students by 2026.
The affluent district serves an estimated population of 360,488. Median household effective buying income 152% of the national level. Market value totaled $35.7 billion in 2017, which S&P considers “very strong” at $98,900 per capita. Net taxable assessed value has grown by a total of 23.9% since 2015 to $35.7 billion in 2017. The 10 largest taxpayers accounted for about 2.4% of net taxable assessed value.
Despite the downturn in the petroleum industry, the district reports that it has not seen a meaningful impact on local home prices or new construction. Several sizable master planned communities are in various stages of development, with hundreds of new homes being built annually, according to S&P.
“This growth is expected to result in continued strong AV growth approaching 10% annually for fiscal 2018 and remaining strong thereafter,” wrote S&P analyst Joshua Travis. “Should economic growth fall off, causing debt levels to rise or financial reserves to deteriorate significantly, we could lower the rating.”
One dent in the district’s armor is “moderately high” debt loads at 8.8% of market value and “high” at $8,718 per capita,” Travis observed, a situation that is not uncommon for rapidly growing districts.
“With 56% of the district's direct debt scheduled to be retired within 10 years, amortization is average,” Travis said. “The debt service carrying charge was 12.7% of total governmental fund expenditures excluding capital outlay in fiscal 2016, which we consider moderate.”
Accreted interest on capital appreciation bonds comes to about $9.2 million according to 2016 audited figures.
Most CAB debt comes from fast-growing school districts that feel confident that tax base growth will support deferred interest payments.
Overlapping debt comes mostly from municipal utility districts that have proliferated around the Houston area in recent decades.
After this week’s bond sale, the district will have about $348 million in authorized but unissued debt. Officials report that they will continue to use the commercial paper program to finance construction on an ongoing basis, with the next long-term issuance likely occurring in the fall of 2017 and the spring of 2018.