WAS THE RUSHED BISD $25 MILLION BOND ISSUE A BUST?

By Juan Montoya
We've all heard of the old saw that if something sounds too good to be true it probably is.
Couple that with the other saying that there is no such a thing as free money and any plans built based on the above two assumptions is a recipe for disaster.
In the case of the Brownsville Independent School District, it appears that the board believed the siren song of the administration's financial gurus and a local bond salesman that will result in the district being held responsible for paying additional debt to the tune of more than $600,000 a year.
And many are questioning why the financial wizards at the district did not heed the writing on the wall that the state would restrict educational assistance due to a severe budget crunch approaching $25 billion.
On December 7, the BISD voted to establish a corporation to issue more than $25 million dollars in new construction projects under the Qualified school construction bond Program governed under Section 44.035 of the Texas Education Code.
The Instructional Facilities Allotment (IFA) program was authorized in House Bill 4 by the 75th Legislature in spring 1997 and became effective September 1, 1997. The IFA program provides funding to districts to assist with debt service payments on qualifying bonds and lease-purchase agreements.
To receive IFA program assistance, a district must submit an eligible application to the Texas Education Agency (TEA). The proposed bond or lease-purchase proceeds must be for the purchase, construction, renovation, and/or expansion of instructional facilities. On close of the application cycle, the TEA ranks all eligible applications in order of property wealth per student in Average Daily Assistance.
State aid under the IFA program provides a guaranteed yield of $35 per penny of tax effort per unweighted ADA.
State assistance is awarded beginning with the district with the lowest property wealth and continuing through the other eligible districts until all available funds have been used. If a district meets and maintains all IFA conditions, Texas statute guarantees IFA state aid for the life of the debt that has been approved for funding.
Since 1997, when the program was initiated, the state has granted more than $350 million in such aid to school districts.
Believing that the gravy train would continue rolling, BISD bond broker Noe Hinojosa and BISD Superintendent Bret Springston and Chief Financial Officer Tony Fuller presented the plan January 11 to the board to use $25 million in funds from the expected revenue of the new construction bonds. Between the assistance through the federal government's Recovery Act (stimulus money) paying 70 percent and the IFA picking up the other 35 percent, the district, they argued, could stand to make free money on the deal.
If you think this sounds like double-dipping, well, you're right.
But what they didn't expect (although we're sure the gentlemen will argue otherwise in hindsight) was that the state was sinking more and more into a deficit that might dry up the funds.
"The warnings were everywhere," said a district observer. "There were people telling the trustees way back in 2010 before they even established a corporation to tap into the funds that there were storm clouds in the horizon. It was a gamble to count on the state funds with the budget condition the way it was."
Nonetheless, a Public Facilities Corporation was established and counted Rick Zayas and Ruben Cortez as its two initial board members.
At the time, no one knew why Springston would recommend its approval knowing that major cuts were being announced throughout Texas.
Now we have information that the TEA has turned down the BISD for its IFA application, leaving the district stuck with paying for the debt for the next 18 years. In all fairness, we hear that the TEA turned down another 14 districts across the state for the funding, though it's not clear whether they had already committed the funds as the BISD did.
On February 1, in Section XI of the consent agenda, number 9, an item up for "Information, discussion, and possible action referencing the Lease Revenue Qualified School Construction Bonds Series 2010A, 2010B, 2010C, and 2010, a presentation will be made by financial advisors Estrada & Hinojosa and Bond Counsel Fulbright & Jaworski to lay out the matter.
If the trustees in the past two years have dipped into the fund reserves for more than $78 million in the past two years, the combination of drying up state funding and cost overruns in the BISD will further severely deplete the fund as a result.
"We're looking at long-term debt incurred based on the assumption that the state had deep pockets," said an administration staff member. "We never expected the state not to fund our application."
Nonetheless, at the urging of Springston, Fuller and Hinojosa to go after the "free money," the trustees then approved the setting up of the corporation, the projects, and even let out bids and awarded contracts for the construction.
Many say that the binge of contracts had a political side: The corporation managed the bids and awards for the lucrative work right around the Nov. 2 election. In fact, there was such a rush to put the expected funds to work that during that meeting, the board approved bids for construction at Porter, Hanna, the Brownsville Academic Center, and the Early College/High School Project - all to be paid from the Qualified School Construction fund.
"Why was it so urgent for BISD to approve these bonds?," asks the http://www.carebrownsville.blogspot.com/ ? "Why was it presented like a do or die situation, sign on the dotted line, like a used car salesman selling you a lemon pushing you to sign because he knew you were getting a raw deal?"
There will undoubtedly be many more questions as the Sprinsgton administration scrambles to put out the brush fires from this latest boondoggle. Already, there are busy little beavers looking up the contractors and architects who were awarded these projects to see whether a money trail exists between them and current and former board members.
Stay tuned.