DALLAS — The Austin Community College District plans to price $44.4 million of lease-revenue bonds to build its first campus in suburban Hays County after a Texas Supreme Court victory cleared a path to the market.
The bonds are scheduled to price the week of April 2 in a negotiated deal with JPMorgan as book-runner. Coastal Securities serves as financial advisor.
The court halted a challenge from Kyle, Texas, dentist Ray Wolbrecht, who contended the November 2010 bond election should have been invalidated because of incorrect information about how much property taxes could be raised. Voters in Hays County approved the campus and the property tax levy with 59% in favor.
After the lawsuit made its way through the appeals process, the state’s high court ruled on Jan. 13 that the bond election was valid. Because of Wolbrecht’s continued appeals, the district was unable to issue debt.
The delay cost the district access to the Build America Bond program that expired at the end of 2010. Loss of the federal subsidy for the taxable bonds cost the district about $20 million in interest costs, district officials estimated. The BABs would have lowered interest costs through the 35% federal subsidy on interest. The higher anticipated cost of the financing led to a decrease in the size of the project.
Austin Community College managed to complete a $33 million BAB issue in mid-December 2010 for the new Elgin campus in Bastrop County.
ACC originally planned to complete a $45.8 million, 72,000-square-foot campus in the town of Kyle by August 2013. After the November vote, however, the Kyle campus plan grew to $55.8 million and 100,000 square feet. Facing higher finance costs in the face of the lawsuit, the district decided to scale back to the original plan.
However, the district caught a break in timing of the issue, as yields on highly rated bonds have fallen to near record lows recently.
From the upcoming issue, about $10 million will go toward land purchases, with $35 million for project costs, according to ACC vice president for finance Neil Vickers. District officials are aiming for a campus of between 70,000 and 80,000 square feet.
“We look forward to delivering all the programs and services promised to the Hays [Consolidated Independent School District] community,” ACC president Richard Rhodes said after the ruling. “We will move forward with construction as quickly as possible.” The college is in the design development phase. The Hays campus will be built on 96 acres in Kyle’s fast-growing Plum Creek area.
Since annexation into the community college district, residents of the Hays Independent School District qualify for lower, in-district tuition rate.
Ratings on the upcoming bonds have not been reported, but ACC earned ratings of Aa1 on its general revenue bonds and Aa2 on its lease-revenue bonds from Moody’s Investors Service on a December refunding deal of $35 million. Standard & Poor’s rated those bonds AA-plus and AA respectively, with both agencies assigning stable outlooks.
“The rating assignment and affirmation reflects the district’s sizable and expansive base located in central Texas, a history of sound fiscal practices amidst recent declines in state appropriation, and overall modest debt burdens,” Moody’s analysts observed.
Like all forms of higher education in Texas, the community colleges have seen decreases in state funding. The district covers 1,250 square miles primarily in Travis, Hays, Bastrop, and Williamson counties. School districts that make up the ACC district include Austin, Leander, Manor, Del Valle, Round Rock, Elgin and Hays.
While other school districts lie within its boundaries, ACC officials report there are no current annexation plans.
The Elgin Independent School District, which joined the ACC at the same time as Hays, got a head start on its new campus due to the lawsuit.
The Elgin Campus will be the first community college campus in Bastrop County when it opens in fall 2013 with capacity for 1,500 students.
In a metropolitan area of 1.7 million people, the Austin Community College District enrolled 40,870 students in 2010, an increase of 12.3% over 2009. Over the past five years, enrollment growth has averaged 7.1%. In fiscal 2011, unaudited numbers indicate similar growth trends with enrollment increasing by 10.1% to a little over 45,000.
“Increased enrollment is the result of strong demographic projections including substantial population growth in the service area, weak economic environment, a curriculum targeted to the labor needs of area economies, sizable online offerings, and access to quality four-year education institutions,” Moody’s analysts wrote. “Enrollment estimates for 2012 indicate a tapering off of expansive growth with an increase between 1%-2%, which Moody’s notes is in line with the counter-cyclical nature of the economy.”
The ACC district revenue comes from property taxes at 37.8%, state appropriation at 21.4% and net tuition and fees at 18.3%. Over the past four years, ad valorem taxes have increased by 46.8% to $105.5 million in fiscal year 2010.
The district is at its voter approved maximum of $0.90 per $1,000 of assessed values cap. The cap for debt service is $0.50 per $1,000 of assessed values, and in fiscal 2012 the district levied $0.05 for debt service. The debt-service tax rate has reduced over the years as no general obligation bonds have been issued since 2006.
“The overall net debt burden is moderate in our view, at 5.5% of assessed value, and high at $5,995 per capita due primarily to the significant amount of bonds issued by the underlying school districts,” S&P analysts wrote in December. “We consider direct debt levels, however, very low with a direct debt ratio of less than 1%.”
The ACC district’s debt service schedule before this issue extended through 2035. Officials are currently considering holding a GO election in fall 2013 for $300 million to $500 million as part of the facilities plan.