DALLAS — A year before opening a $60 million stadium that has become a symbol of Texas’ zeal for high school football, the Allen Independent School District is turning its attention to classrooms and the deepest budget cuts in state history, experts said.
If market conditions allow, the district plans to issue $67 million of general obligation bonds for school projects this week. As work on the stadium continues, the district is postponing construction of an elementary school for one year, though the $17 million of bonds to build it are included in this week’s planned sale.
Morgan Keegan is senior manager on the negotiated deal. Wells Fargo Securities, Southwest Securities, and BOSC Inc. are co-managers. First Southwest Co. is financial advisor and Fulbright & Jaworski is bond counsel.
While last week’s stock market plunge drove many investors into bonds, the Friday night downgrade of U.S. Treasury debt by Standard & Poor’s threatens upheaval in muni bonds.
“We’ll continue to monitor the market and make a decision going forward,” said Mark Tarpley, assistant superintendent for finance at the district. “If there is a flight to quality, our bonds should be very attractive because they’re rated triple-A with the PSF backing,” he added, referring to the state’s Permanent School Fund that insures qualified school bonds.
The district’s underlying ratings are also strong at AA from Standard & Poor’s and Aa2 from Moody’s Investors Service. Fitch Ratings does not rate the debt.
“Although we note that the financial environment remains pressured, we expect that management will continue to manage the budget to ensure sound fiscal practices and maintain or improve reserves,” wrote Moody’s analyst Adebola Kushimo.
After this week’s sale, the district will have $92.1 million of authorized but unissued bonds. The district expects to issue additional bonds within the next couple of years, with the expectation of keeping the tax rate flat with its current rate of $5 per $1,000 of assessed values.
“Although additional debt issuance without considerable tax base expansion could result in negative rating pressure, we note that elevated debt levels are not unusual for rapidly growing school districts,” Kushimo noted.
Located in the affluent and rapidly growing northern suburbs of Dallas, the district has been on a building spree for the past decade as its population more than doubled to 84,000. In addition to the city of Allen, it serves parts of McKinney and other suburbs.
When more than 60% of voters decided in May 2009, despite the crumbling financial markets, to issue $119 million of tax-backed bonds to build the stadium and other facilities, the district found itself the subject of coverage by news media across the country, including The New York Times and network newscasts.
“It’s hard when people are losing their jobs and you’re building a $60 million stadium and an auditorium and things like that,” Allen High School athletic director Steve Williams told CNN. “But those are two separate things. You can’t take that money for buildings and hire teachers with it.”
Tarpley and other school officials reiterate that point — that operations and bond debt are backed by two separate tax rates. While districts statewide are facing a historic squeeze in the operations budget with steep cuts from the Legislature, spending on school construction and related capital projects is up to local voters.
Furthermore, funds raised through a bond issue remain in the district and are not included in the property tax revenues shared with school districts statewide.
Regarding the debt raised for the stadium, Tarpley said that taxpayers understand the difference between the two tax rates.
“I think people need to look at the big picture,” he said. “Everyone’s focused on the short-term economic conditions. It is important to look at that, but this stadium will still be around for 50 or 60 years.”
The stadium, which will adjoin Allen High School, has been compared to a college facility. It will have a brick exterior, an 18,000-seat horseshoe seating area with an upper deck, a video scoreboard, a two-tier press box, and concession stands. The complex will include an arts auditorium, training room, and indoor practice arena for the golf team.
When the former state champion Allen Eagles start using the new stadium next August, the district expects to be struggling with what superintendent Ken Helvey calls “devastating” cuts in state funding for school districts.
The Legislature reduced funding by more than $4 billion in June, the first time the state has cut education funding. Cuts to the Allen ISD are $9 million for 2011-2012. An additional $3 million will be cut in 2012-2013, according to officials.
After the Legislature acted, the district board approved a 2011-12 budget of $132.7 million in June, which is $4.5 million less than the 2010-11 budget.
In addition to the $4.5 million in budget reductions, the board is asking voters to raise the maintenance and operations tax rate to $1.17 per $100 of property value from $1.04 in what is known as a “tax ratification election.” The increase would raise $10 million, which the district says will help balance the budget and hire additional teachers to meet student growth over the next two years.
The debt service tax rate would remain at 50 cents per $100 of assessed value, the same rate since 2009. The tax election has been set for Oct. 8.
To cut costs, the district reduced 80 positions this year, saving $3 million, and made an additional $1.5 million in cuts to non-instructional areas such as administration, maintenance, and energy expenses.
So far, the budget cuts and stadium have sparked few complaints. At a meeting June 20 to adopt the budget, there were no takers in an invitation for public comment.
The most controversial issue facing the board is a plan to build a service center and “bus barn” with $36.5 million from the 2009 bond authorization. Neighbors fear that noise and congestion will lower their property values. The board has agreed to consider sites other than the one already purchased for the center.
Meanwhile, postponing construction of the district’s 17th elementary school is not due to the availability of bond funds but because the budget for maintenance and operations won’t allow it, Helvey noted at a recent school board meeting.
“Elementary 17 will be postponed, we hope, for just a year due to our pending financial situation, knowing that the year we were planning to open it was probably going to be one of the worst in our budget history,” Helvey said.