h/t to former State Representative Harryette Ehrhardt and her speech to the Dallas Assembly
An article in Dallas Morning News on Wednesday, Oct. 1, 2014, dropped a bombshell on the citizens of Dallas. However, it was quickly overshadowed by the frightening news that the first case of Ebola virus in the United States was diagnosed right here in Dallas. The Ebola virus will likely and hopefully affect only a handful of people here, whereas the other news has the potential to affect every taxpayer in DISD.
The first sentence of the article reads:
“Dallas ISD has launched a 25-member task force to analyze district facilities in preparation for a possible bond program or tax hike election.”
The task force has already begun to meet and expects to finish their work by the end of the school year and make its recommendations for new facilities, school upgrades, and additional programs. This would be right in line with the time line the district has had for the goal of a bond election in 2016. The idea of a tax ratification election (TRE), or property tax increase, had not previously been acknowledged in such a public fashion.
This article will not address the merits of a bond program, tax increase, or the removal of the homestead exemption, which is an option readily available by trustee vote without voter approval. Those issues will be analyzed at a later time. Instead, this article will focus on the problems inherent for a district attempting to plan a bond and/or tax ratification election with the possibility of a Home Rule Charter District looming in the future.
What are the important factors to consider when planning a bond election?
First, the district must demonstrate credit worthiness to the voters. The district has just had two clean audits and expects that their bond rating may rise to AA from AA-. This would save the district millions in interest money when they go to actually sell the bonds to investors. The bonds for an independent school district are guaranteed by the Texas Permanent School Fund and therefore are very attractive to lenders. There is currently no such provision in the law to guarantee the bonds of a Home Rule Charter School District (HRCD). That fact alone may give investors pause.
What would be the credit rating for the new Home Rule School District? It would be a brand new legal entity, and it is doubtful that the credit rating of the old Dallas ISD would transfer to the new HRCD, which will effectively be a “business under new management.” Usually, it takes a start-up business several years to build a credit rating, especially if over a billion dollars of investment money is to be raised and it is already carrying the substantial debt of its predecessor. How long would it take for the new HRCD to establish a credit rating? How likely is it that the voters would approve a large bond package before they were confident that the financial management of the new HRCD was proven sound?
If a charter is written and goes before the voters, there are several more possibilities, none of which bode well for those who would like to see a bond package passed in 2016.
During the time between the charter being written (if one is to be written, it must be done by the deadline of June 19, 2015) and the charter going before the voters, there would be no point in holding a bond election. Why would voters approve a large bond package for the Dallas ISD, an entity which would be obliterated if the charter is passed by the voters? Why would they entrust this additional debt to the new HRCD, which has no history of financial competency? At $2.47 billion, Dallas ISD already has the highest debt among all the Texas school districts, and the new HRCD will inherit this debt. Why give it more debt when it is just getting started?
It is likely that the new HRCD would issue the bonds, and with no credit rating, who would buy the bonds and at what interest rate? There would be a “dead period” during which a bond election will not be attempted, lasting perhaps a year or more until the charter election was decided. A bond election could not feasibly be held at the same time as the proposal to adopt a charter.
There are different scenarios based on the outcome of a charter election.
If the voters vote down the charter, then it would be business as usual and it is presumed that a bond package could then be proposed and presented to the voters for approval, possibly as soon as 2017.
If, however, the voters approve the charter and vote to dissolve the Dallas ISD and replace it with an HRCD, the implications for the bond package are enormous. Not only do the issues of credit rating and bond guarantees come into play, but now the enormous roadblock of litigation raises its ugly head.
A Home Rule Charter School District is uncharted territory and has never been tried before. The law is vague and even education lawyers have varying interpretations of several important issues in the law. Many citizens groups have risen up against the idea of replacing the Dallas ISD with a Home Rule Charter, and it is certain that the charter will undergo legal challenge(s) instantly. That would throw the district into even more instability than the “disruptive change” it is experiencing currently.
Would the new HRCD go ahead and assume control of the district after the election, or not? There would be a period of instability while the changeover from the old Dallas ISD into the new HRCD occurred, which likely will take a year or more. There will have to be a secure transfer of systems, student information, employee information, check information, vendor contracts, etc. The re-hiring and re-contracting of the existing 20,000 employees, or recruiting new personnel to take their place, will be time-consuming. And if the charter did start the takeover, and the courts subsequently declared the HRCD illegal, what then? What if only parts of the charter were declared illegal? All of the processes might have to be done over again if the courts declared the charter illegal. This would come at great expense to the district. The voters would be unlikely to approve a large bond package during this time of instability, which will again push back the timing of a bond election still further.
During the time while the legality of the charter is tied up in the courts, it is highly unlikely that the voters would pass a bond package. Taxpayers would have reasonable doubts as to the financial and legal well-being of the district. Investors would be hesitant to buy bonds from an entity which might subsequently be declared illegal by the courts.
How long might the district be in “legal limbo?” Consider that the district was in litigation over the Tasby case from 1970- 2003. We did have successful bond packages during the process, but the legal legitimacy of the district was not in question at that time, as would be the case in the charter lawsuits.
Therefore, if a Home Rule Charter proposal is passed by the voters, it is unlikely that a bond election would be able to be successful for many years following the conversion of the Dallas ISD to the new Home Rule Charter School District. The best guess of the time frame of doubtful passage seems to be at a minimum 3 years from voter approval of the charter, to as many as 4-6 years or longer. This would mean that Dallas would be looking at 2018 at the very earliest for a new bond proposal (11 years after the last one) and, on the long side, 2021 or later. This would completely disrupt the current time frame planning on a November 2016 bond election.
Judging from these facts, it appears that the business community needs to carefully consider the current push to convert the Dallas ISD into a Home Rule Charter School District and look closely at the impact that campaign will have on any future bond proposal. Many in the business community have not taken a definite stand on the Home Rule issue. Support for Home Rule could prove to be a very unwise decision for the economy of the city of Dallas, not to mention the effect on the learning environment of the students of DISD.