CHICAGO — North Dakota has a new credit-enhancement program aimed at boosting ratings for small school districts, many of which need to borrow to accommodate growing enrollment due to the state’s oil boom.
Other districts, like the Minot Public School District, are financing projects to help recover from last spring’s floods.
Like many state school enhancement programs, the North Dakota’s Department of Public Instruction’s school district enhancement program features an intercept mechanism that pledges the state will accelerate its aid payments if the district is unable to make a payment.
The intercept feature raises the rating and lowers the borrowing costs for the participating school districts.
Moody’s Investors Service assigned a Aa3 rating to the North Dakota program, two notches below the state’s Aa1 rating. Standard & Poor’s rates the state AA-plus and is also expected to assign a rating to the enhancement program.
The program will see its first deals over the next two weeks as several school districts bring transactions to market before the end of the year, officials said.
“Some areas of the state are seeing a lot of growth, and so they have been expecting a growth of as many as 500 to 800 kids over the near future, so they need to build schools,” said Jerry Coleman, director of school finance for the Department of Public Instruction.
“Others are looking at refinancing debt, and we just had the Minot area just devastated with the flood; it lost three schools that need to be replaced,” Coleman said. “Then there is some new construction, and the oil boom is certainly going to drive some of that.”
North Dakota is in the midst of the largest oil boom in its history, centered around several counties in the western part of the state.
The boom is driving an increase in population and demand for housing, schools, and other services, as well as putting a strain on infrastructure like roads.
Thanks to oil-related revenue, North Dakota is enjoying one of the strongest economies among U.S. states.
“It’s mostly a blessing, but in some respects it’s mixed because they’ve had to adapt so quickly that it’s posing some programs to some districts that are seeing large increases in enrollment,” said Chuck Upcraft, a senior managing consultant at Public Financial Management Inc., which had a hand in the creation and implementation of the enhancement program.
“The Aa3 rating is really going to be useful to our smaller school districts,” Upcraft said.
“A lot of the little ones which are having to issue debt to accommodate growing enrollment, on their own they might struggle in the A category, and others not even that high,” he said. “But with the Aa3 rating based on the state, that’s really going to help them out.”
To participate, school districts must be able to provide at least two times maximum annual debt-service coverage on the bonds.
They also msut provide for an additional bonds test that requires at least two times the coverage on the maximum annual debt service for all outstanding bonds and for subsequent bonds to be issued under the program.