NOE AND THE DEBT SCAVENGERS ARE BACK AT THE BISD

By Juan Montoya
They're back.
The same folks who encumbered the Brownsville Independent School District in 2010  in the issuance of $25.9 million in Qualified School Construction Bonds (QSCB) under the federal Instructional Facilities Allotment (IFA) in 2010 are back for more.
This time the money boys want the BISD board members to refinance (and in some cases with older bonds, re-refinance) about $80 million in bonds.
The meeting on Tuesday begins at 5:30 p.m.
Board members and even former Superintendent Brett Springston were told at the time that the state would consider the entire debt service with federal tax credits which would make the bond "free money."
Instead, the state had warned the bond counsel Fulbright and Jarwoski and financial advisers Estrada, Hinojosa and Company Inc.that it would not allow the use of the federal tax credits to cover the grant amounts and the district was saddled with more than $9 million in debt instead, and $507,068 a year in debt payments.

Some of these older bonds have been refinanced before and Estrada, Hinojosa and Company Inc.want to refinance them again, for a slight fee, of course. If it's at 1 percent, it will mean a cash profit for them of $800,000 plus the costs to the bond counsel and underwriters.They will have seconds of the banquet that they themselves laid out.
There is some reluctance on the part of some board members to fall for the bait again. This is why.
At the time that a forensic audit was performed on the $25.9 bond issue, the auditors found that there was a "failure of the BISD's bond counsel, financial consultants and (former BISD CEO Tony) Fuller in the issuance of $25.9 million in Qualified School Construction Bonds (QSCB) under the federal Instructional Facilities Allotment (IFA)in 2010."

The auditors found out that as early as March 20, 2010 – months before the board followed the advice of bond counsel Fulbright and Jarwoski and financial advisors Estrada Hinojosa and Company Inc.

and issued the debt in December 7 – that the Texas Education Agency could change the rules before they issued them.
In March 2010, the State Funding Division of the TEA notified BISD Financial Advisor Estrada Hinojosa and Company that the rules may change regarding those bonds that receive tax credit.

From this point, until after the (bonds) were issued and sold, the forensic audit could not find any written documents where the financial advisor communicated to the district the possibility that the rules may change based on the calculations of debt service due to the effect of receiving the federal subsidy.

The board authorized the issuance Dec. 7, 2010 and the bonds were sold Dec. 22. A little over two weeks later, on Jan. 6, 2011, Estrada Hinojosa and Company were contacted by the TEA and they were told the debt service schedules submitted with the four IFA applications were incorrect because they did not deduct the federal subsidy from the debt service requirement on the bonds.

So, instead of a minimal payment, or none at all as they had been promised, the board members were told that the district's local share will be a approximately $507,068 a year which over the 18-year term of the bonds will cost the district taxpayers $9,127,216 to retire.

Neither bond counsel nor Estrada, Hinojosa and Company told the board members that the TEA might change their policy. The Forensic Audit Staff could find no evidence they attempted to find out before the bonds were issued and sold.

However, CFO Fuller was told by the financial advisor that TEA might change the way the debt service is funded to only the "net" service being eligible for funding. Fuller advised Forensic Audit Staff that he wishes, in hindsight, he had informed the board.

The forensic auditors recommended that "trustees seek legal advice from an outside legal counsel who has experience in filing legal suits and litigation to explore whether or not the district should file a lawsuit against the financial advisory and/or the bond counsel.

"(We) also recommend the board of trustees and superintendent review the facts regarding (Fuller)'s dereliction of duty in that he did not fulfill his obligation to inform (them) that the state's rules might change which was critical information needed to vote on the issuance of $25.9 million in bonds."
Some board members like Lucy Longoria are wary that no workshop on the item or discussion has taken place before the three items were placed on the agenda for action for Tuesday. She said that since the advice that Estrada, Hinojosa and Company was incorrect the last time around and they still collected their commission for the $29 million issue, that the company should provide the new refinancing for free.
"The didn't deliver the last time and it costs us $507,068 a year in debt payments," she said. "That's why we're where we're at today. They should do it for free."
If Longoria's ire is shared by the other trustees, perhaps the fate of the financial advisers should be considered along with item 18. "Discussion, consideration and possible action regarding taxidermy mounted animals to be donated on behalf of Cavazos Family."
The refinancing items on the agenda are:

22. Consideration and approval by the Board of Trustees of the Brownsville Independent School District of a Plan of Finance to Issue One or More Series of Refunding Bonds to refund certain outstanding obligations of the Brownsville Independent School District; select Bond Counsel and Underwriter(s); authorizing District Staff and Financial and Legal Consultants to proceed with such Financing; and approving other matters incident and related thereto.
23. Consideration and approval of an order by the Board of Trustees of the Brownsville Independent School District authorizing the Issuance of Brownsville Independent School District Unlimited Tax Refunding Bonds, Series 2013A; entering into an Escrow Agreement, a Bond Purchase Agreement, and a Paying Agent/Registrar Agreement; delegating to certain District Administrative Staff and Officials the authority to approve all final terms of the Bonds; and other matters related thereto.
24. Consideration and approval of an order by the Board of Trustees of the Brownsville Independent School District authorizing the Issuance of Brownsville Independent School District Unlimited Tax Refunding Bonds, Taxable Series 2013B; entering into an Escrow Agreement, a Bond Purchase Agreement, and a Paying Agent/Registrar Agreement; delegating to certain District Administrative Staff and Officials the authority to approve all final terms of the Bonds; and other matters related thereto.