THE ZAYAS,CORTEZ, SPRINGSTON FINANCIAL CHICKENS COME HOME TO ROOST: FITCH RATINGS OF BISD $173.9 MILLION IN TAX BONDS REVISED FROM STABLE TO "NEGATIVE"

By Juan Montoya
You can't say that at least one voice on the Brownsville Independent School Board board of trustees didn't warn the majority way back then (Rick Zayas, Ruben Cortez, Rolando Aguilar and Joe Colunga) that their constant dipping into the district's reserve funds to cover up gross overspending on change orders and the construction frenzy for their constractor friends would break the district.

You remember. It was Catalina Presas-Garcia since 2008, and then Lucy Longoria when she got on board in 2010 who warned the majority that their spending ways and cooking of the books could not last forever.

Well, the time to pay the piper has arrived.

Fitch Rating Services (you remember, these are the same guys that downgraded the U.S. financial rating) has revised its rating of $173.9 million of the district's unlimited tax bonds (ULTs) affirmed at "AA" from "stable" to "Negative."

 In its outlook released Nov. 3, Fitch states that the district's diminished financial cushion has been badly impacted by the practices of the district administration (and its board).

"Sizable budget variances have caused a trend of larger anticipated drawdowns of fund balance in each of the last three fiscal years," the outlook states. "While current reserve levels remain adequate for the "AA" rating category, the Negative Outlook reflects challenges the new management team faces in maintaining budgetary balance and reserve levels in line with current forecasts and ongoing budgetary pressure."

And it warns that "Continued declines in general fund balance beyond current forecasts could apply downward pressure on the rating."

The $173.9 million in bonds issued by the district were secured by an unlimited ad valorem tax pledge levied against all taxable property within the district. In other words, the district taxpayer.

In its credit summary, Fitch pulls no punches.

"While  historical fund balance declines were driven by the district's sizable pay-go spending program, larger deficits in the last three years (2009-2011) were exacerbated by over-budgeting of enrollment-driven state revenues, cost variances (change orders and poor fiscal management and planning), and unplanned capital spending (facilities construction).

"Audited fiscal 2010 results show a $28.4 million net deceit, which exceeded the originally budgeted $11.8 million use of reserves for capital projects and decreased the unreserved fund balance to $81.9 million or still a healthy 19 percent of spending.

"The 2011 adopted budget indicated a $6.5 million use of fund balance, again for capital purposes, but management experts audited year-end results (June 30) to show a steeper $17 million fund balance decline to variances."

The BISD administration lost $17.8 million in fiscal 2012 due to state cuts and expects to lose another $5.6 million in 2013.

Board members were able to balance the 2012 budget by reducing the annual capital outlay to $2.5 million, eliminated positions through attrition and early retirement, implemented a hiring and salary freeze, and used $8.8 million in one-time federal Education Jobs Bill monies.

The district approved another $4 million of fund balance for targeted campus improvements that the administration and board members justified as necessary to retain students amid competition from nearby school systems.

As a result of this accumulated spending over the last three years, Fitch states that "operating reserves would total about $14 percent of budgeted spending, which is below the district's formal target of 75 days (20.5 percent ) of operating costs."

Unless the board continues its frugal fiscal policies and "tapering of pay-go capital spending," Fitch "views the new management team's ability to maintain budgetary balance and reserve fund balance in the forecasted 14.5 to 15 percent range as critical to credit quality," and darkly warns that "further declines in reserves could prompt negative rating action."

Her are a few examples of the sorry fiscal track record under the former majority, propogated with the collusion of CFO Tony Fuller and former superintendent Brett Springston:

* District planners projected costs for salaries for instruction (teachers, aides, etc.) to total $199 million in 2009-2010. The actual amount spent turned out to be $206 million – $7 million more than the projected amount. Go to reserves to cover up that bad guesstimate.

* The figures for construction of facilities are even more egregious.The district miscalculated the costs of the new construction by $92 million in that year and listed it as a deficiency. Additionally, district planners estimated that they would spend $2.6 million in 2009 for facilities acquisition and construction and the actual amount totals $24.8 million. Let's go to reserves again for that little snafu.

* Those items alone indicate that the miscalculations cost the district about $114 million more than projected. Yet, the same records indicate that until the 2007 budget, the BISD actually had a $7.2 million surplus heading into 2008.

And yet, they did not heed the warnings:

*In 2008-2009, projected revenues of $393 million did not materialize and the district collected only $387 million. At the same time, the district spent $395 million, a deficit of some $8 million.

*The 2009-2010 budget is even worse. The district projected collecting $390 million but collected only $384 million. At the same time it spent $411, million a staggering $27 million cost overrun (as Fuller and Springston would say, not a deficit).

*As a result, BISD dipped into its reserves $11.8 million to support its fund balances in 2009-2010. In 2010-2011, it will dip another $6.5 into reserves to prop up its budget. The culprits? The district seriously miscalculated on several budget items, notably personnel salaries and construction costs.

Can you hear the chickens now fellas?