DALLAS — The Plano Independent School District faces a new year of litigation over Texas’ school funding law after surviving a year of unprecedented austerity. Before going to court, the large and affluent district north of Dallas will issue $92.8 million of bonds to accommodate its still-growing student population.
The district will price the triple-A rated tax-exempt bonds competitively on Jan. 9. First Southwest Co. is financial advisor and Fulbright & Jaworski is bond counsel.
The tax-exempt bonds will mature from 2014 through 2037 with a 2022 call date.
With top ratings through the Texas Permanent School Fund guarantee, the bonds are expected to appeal to risk-averse, long-term investors seeking better yields than those offered by Treasuries.
The district’s underlying ratings are Aaa from Moody’s Investors Service and AA from Standard & Poor’s, both with stable outlooks.
“Although the adopted fiscal 2012 budget reflects a $23 million reduction in state funding, officials are projecting to increase their unreserved general fund balance by $8 million due to tight expenditure controls, reductions in force, and conservative revenue assumptions,” Standard & Poor’s analyst Sarah Smaardyk noted in her report.
The upcoming deal is part of $490 million of bonds authorized by voters in May 2008 with 78% in favor.
The money was earmarked for new schools in the eastern portion of the district and to renovate and expand other facilities. The district will have $76 million of authorization remaining after this issue. The district plans to issue approximately $60 million within the next 14 months.
The district’s $976 million of outstanding fixed-rate debt after this issue is a level that Standard & Poor’s considers “moderate to high.”
Moody’s describes the debt level as moderate. “Payout is below the national average with 60.4% of principal retired in 10 years,” wrote Moody’s analyst Michelle Smithen. “We expect the district’s debt burden to remain at comparable levels as ad valorem growth slows and additional debt is layered; however, Moody’s expects the district will continue to prudently manage the pace of debt issuance.”
The center of Plano ISD is 20 miles north of downtown Dallas and includes the cities of Plano, parts of north Dallas, Parker, Murphy, and Allen. With a current enrollment of 55,570, growth is expected to be moderate in coming years as suburban sprawl continues beyond the district’s boundaries in Collin and Denton counties.
The district maintains 71 facilities, including three early childhood schools, 44 elementary schools, 13 middle schools, nine high schools, and two other facilities with a combined workforce of more than 6,500. The payroll covers about 3,800 teachers and 2,700 support staff.
The district has been somewhat sheltered from the worst effects of the recession.
Collin County, which includes Plano, recorded an October 2011 jobless rate of 7.2% versus 8.0% in the state and 8.5% nationally. Wealth levels are strong, according to Moody’s, with a per-capita income that is 191% of the state and 174% of the nation.
The district’s tax base of $33.8 billion in fiscal 2011 was 66% residential and 23% commercial and industrial. Several corporate headquarters, including high tech and communications industries, are based in Plano.
In the early part of the decade, residential and commercial growth boosted the tax base. But that trend flattened during fiscal years 2004 and 2005. Growth resumed in fiscal 2006, hitting 8.3% between fiscal 2008 and 2009. However, values fell about 3.1% in fiscal 2011. In the commercial sector, appraisal values were lowered by approximately 6%, reflecting the slump in the commercial real estate market.
District officials do not expect significant taxable value growth in the near term, as most land in Plano is already developed and single-family home building has slowed.
“While the district is about 80% built out, we believe modest growth in remaining undeveloped areas, commercial/industrial activity, and a desirable metropolitan location will allow for long term stability of taxable values,” according to Smithen.
The most pressing issue for Plano ISD and other Texas districts is the level of state funding and the formula going forward.
The district’s current budget is $35 million below that of the one adopted for the 2010-2011 school year after the 2011 Texas Legislature cut school spending for the first time in state history.
Plano ISD announced the elimination of 344 positions, or 5% of its staff. That included $10.4 million in cuts to administrative staff.
In November, Plano’s school board unanimously agreed to join the Highland Park, Frisco, and Lewisville school districts in a lawsuit challenging the Texas public school finance system. The lawsuit, filed in mid December, represented the “property-wealthy” or Chapter 41 school districts that share property tax revenue with “property-poor” districts.
Both the property-wealthy and property-poor districts are challenging the constitutionality of the finance system.
Plano and other districts in the lawsuit contend that Texas’ so-called Robin Hood law impairs their ability to serve students. Since the school funding formula was devised in 1994, they say, methods of evaluating the equality of education have changed under federal legislation such as “No Child Left Behind.”
So far, four suits have been filed against the Texas Education Agency, which administers school funding and the Permanent School Fund that guarantees school bond issues.
The 500 school district plaintiffs in the four cases represent more than 3.3 million students, or 60% of the total public school enrollment in Texas. The four cases are expected to be combined in a single action for a trial next fall. The Legislature will meet again in 2013 to produce a biennial budget.
The lead plaintiff in the fourth suit is the Fort Bend Independent School District near Houston. Others include the Dallas Independent School District, the Houston Independent School District, the Austin Independent School District, and the Fort Worth Independent School District.
The lawsuit contends that the state has raised standards for pupil performance without funding resources to cover the cost. The funding system was adjusted by the Legislature in 2005 after the Texas Supreme Court said the method then in place had become a statewide property tax that is banned by the state constitution.
The updated law capped local property taxes, with the lost revenue to be replaced through a state business tax. That levy has never brought in the revenue that lawmakers anticipated, forcing a $5.4 billion cut in state education aid for fiscal 2012 and 2013.