Tuesday, August 30, 2011

Leander ISD's Negative Outlook

While Americans have become much more cognizant of government debt at the national level, they are less aware of government debt problems at the local level.  In some areas these debt loads are beginning to inflict further pain on communities already struggling in the 'Obama' economy.

Earlier this year I wrote about what I referred to as a looming crisis for the Leander Independent School District, and more recently Owen Stroud published an excellent analysis, "Leander ISD:  In the Shadow of Debt."  The bottom line is that district leadership and the paltry few who vote in ISD elections took on over $1.2 billion in bond debt, resulting in debt service costs of $56,828,366 last year and one of the highest ISD property tax rates in the area. 

While our concerns about LISD finances have been dismissed by some board members and district apologists, conservative journalists are not the only ones alarmed by these trends.  As reported by Business Wire earlier this summer, the Fitch Bond Rating service downgraded LISD's Rating Outlook to 'Negative.'

Fitch considers the district's debt levels very high. Overall debt levels approximate 13% of market value and $15,600 per capita, which are well above average for the current rating category. In addition, amortization is slow, reflecting in part the use of capital appreciation bonds (CABs) to minimize tax rate impacts and shift the debt burden to future taxpayers. Approximately 38% of the district's direct debt is retired in 10 years on a non-accreted basis. Annual debt service represented almost 21% of general government spending in fiscal 2010, and annual payments as currently scheduled increase by 18% by fiscal 2013 and by 37% by fiscal 2015
The current LISD Board seems to be struggling to cope with the financial mess, and tax hikes are definitely in the works.  New board member Aaron Johnson has proposed some plans to restructure debt, which may help slightly, but as Stroud notes in his article,  the "previous reckless decisions will continue to haunt" for years to come. 

One possible action on the part of LISD Board is cause for concern.  It seems the LISD is considering purchasing additional property to build another middle school.  This is not likely to go down well with taxpayers, since the district already has two brand-new school buildings sitting empty for a second year.  There will be a Special/Joint meeting with the City of Cedar Park on August 30.  (Such meetings are relatively routine, as there must be cooperation between the two entities regarding new construction.)  It will be interesting to see whether the ISD really has purchase plans in the works. 

The district will rebuff criticism of any new purchases since the funds likely come from previously issued bonds, and they will say they are planning ahead for future growth.  However, in light of the current challenges faced by LISD, spending millions on new land and construction hardly seems prudent.  And while districts separate budgets for M&O (Maintenance and Operation) and I&S (Interest and Sinking funds,) at the end of the day all of these funds, including debt service, will come from taxpayer pocketbooks.

Hopefully the elected LISD leadership has realized they simply cannot continue 'business as usual.'  If they do not change these patterns, the outlook will be worse than 'negative.'  It could be disastrous for residents and the local economy. 

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