DALLAS — Overstating its enrollment has caused a fiscal crisis for a school district in Houston, while a Dallas charter school was forced to close its doors last week after Texas officials realized it overestimated student population figures and collected too much in state funds as result.

Standard & Poor’s earlier this week lowered the credit of the North Forest Independent School District in northeast Houston two notches to the speculative-grade rating of BB from BBB-minus due to “severe fiscal distress.” The downgrad applies to $68 million of outstanding debt.

In North Texas, the Lynacre Academy abruptly shuttered operations late last week. The school was closed when students arrived for class Monday.

Analysts placed North Forest ISD on credit watch with negative implications, citing “significant financial deterioration and the potential for [the district] to cease operations.” An independent auditor, who uncovered the problems, also expressed concerns about the district’s “ability to continue to exist,” according to analysts.

The district received $7.3 million from the state due to “improper reporting of student enrollment,” and a “lack of monitoring and understaffing” also contributed to a negative fund balance, Standard & Poor’s said.

Analysts added officials used bond proceeds “to cover a portion of operating expenses while waiting for additional tax revenues” from $11.7 million of delinquent taxes owed the district.

“We might take additional negative rating actions should the district’s finances continue to deteriorate or if district management does not implement a plan to restore fiscal health and balance,” said analyst James Breeding.

North Forest operates seven elementary schools, three middle schools, two intermediate schools, and two high schools, with a total enrollment of about 8,200, according to communications and community relations coordinator Nakisha Myles.

When the district sold $60 million of refunding bonds in March 2006, it listed enrollment at 10,000, according to the preliminary official statement for the deal.

“For the ’06-’07 school year, it appears they overestimated their enrollment and now the [Texas Education Agency] is attempting to recapture the funds sent to the district,” said Henry Boening, a TEA-appointed conservator at the district. “We’re going to work with the TEA to reach some sort of repayment plan that ultimately helps the district financially.”

Boening is a retired superintendent of the Galveston Independent School District working for the state agency as an independent consultant. He’s been at North Forest since last March, and an education conservator joined him in December.

“Sending in a management team is a rare step and one of the harshest steps the TEA can take because the conservator has the authority to overrule the superintendent or school board,” said Debbie Ratcliffe, communications director for the TEA. “We’re thankful it doesn’t happen often. as it’s a severe sanction.”

The agency currently has only one other two-person conservatory management team in place among the state’s 1,031 independent school districts, Ratcliffe said.

North Forest trustee Charles H. Taylor declined to comment on the audit or the district’s enrollment.

Trustee Barbara A. Gaston referred all queries to board president Tobie B. Ross Jr., who didn’t return calls nor respond to e-mails by press time.

North Forest ISD ended fiscal 2007 with a general fund balance of negative $6.7 million, which is down from positive $14.8 million the year earlier, according to analysts.

Breeding said the district has probably lost about 20% of its population over the past five to seven years with a corresponding drop in enrollment.

The school board for the Lynacre Academy filed for bankruptcy in September after the TEA notified officials that the Dallas charter school owed the state about $743,000. The state appropriated the funds based upon what now appears to be inaccurate enrollment data.

“ISD’s provide enrollment estimates at the end of the year, but charter schools do it every six weeks,” Ratcliffe said. “So it’s not too unusual or bad for a charter school’s count to be off a bit … but a well-managed school puts some of the money we send them in the bank just in case they have to send some back. But it appears this school simply didn’t have that level of financial management.”

Ratcliffe said the TEA awaits a ruling from bankruptcy court regarding repayment of the funds.

Lynacre Academy, which opened in 1998, had 73 students enrolled this school year. The school taught at-risk children in grades seven through 12.



Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.