DALLAS — Texas will issue $9.8 billion of tax and revenue anticipation notes to smooth cash flow for local school districts as the state’s economy continues its steady recovery.

The competitive sale is scheduled Aug. 21. George K. Baum is financial advisor.

Andrews Kurth LLP is bond counsel.

The note offering is 4.9% smaller than the previous year’s, but it is still the state’s second-largest ever, despite strong revenue performance and substantially improved fiscal 2012 cash results compared to original projections, according to analysts.

The state’s forecast projects its largest cash shortfall during fiscal 2013 to be on Dec. 13, 2012, with an ending cash deficit of $11.7 billion. The state will balance that amount with the current $9.8 billion note issue and $1.9 billion of borrowing from other state funds.

“The state’s tax collections continue to perform significantly stronger than forecast, with projected continued revenue stability through fiscal 2013,” noted Standard & Poor’s analyst Horacio Aldrete-Sanchez. “Second, the deferral until fiscal 2014 of approximately $2 billion in payments to schools also reduced the projected cash-flow needs for the state in fiscal 2013.”

The notes earned top short-term scores from all three rating agencies — SP-1-plus from Standard & Poor’s, MIG 1 from Moody’s Investors Service and F1-plus by Fitch Ratings.

The state’s long-term general obligation ratings are AA-plus from Standard & Poor’s and triple-A from Moody’s and Fitch, with stable outlooks.

“These ratings reflect confidence in our state and its economic growth, as well as our conservative spending practices,” said Comptroller Susan Combs. “We have recovered all the jobs lost during the recession and continue to add jobs in Texas. However, we will continue to monitor economic conditions in the U.S. as well as Europe and Asia to track any potential effects on our state economy.”

Texas issues notes in August to meet a front-loaded schedule of school aid payments and revenues. School aid is estimated to equal 18% of total expenditures in fiscal 2013, or $14.6 billion.

In the first three months of the fiscal year starting Sept. 1, the state projects that it will distribute 58% of its annual school aid but receive just 23% of its annual revenue, the lowest revenue period of the fiscal year.

That timing mismatch drives the state’s need for short-term note borrowing, which it has used since 1987.

Texas’ cash-flow borrowings increased steadily during the economic downturn and peaked in the current fiscal year, when the state borrowed a combined total of $10.3 billion short-term. That included $500 million of commercial paper.

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