TPP recommends voting FOR this bond.
 

Background

Conroe Independent School District is asking for $487,000,000 in bonds in order to keep up with the growth of the district. Conroe ISD is the 6th fastest growing district in the state. District-wide, the facilities are at 90.46% capacity: the elementary schools are at 92.16% capacity, the intermediate schools are at 91.97% capacity, the junior high schools are at 93.01% capacity, and the high schools are at 89% capacity. The elementary, intermediate, and junior highs are set to exceed capacity in 2019, and the high schools are set to exceed capacity in 2020. 7 elementary schools, 4 intermediate schools, 2 junior highs, and 2 high schools are already over capacity, 2 junior highs, and 2 high schools are already over capacity, while 9 elementary schools, 4 intermediate schools, 4 junior highs, and 3 high schools are over 95% capacity. Almost half of the 43 schools are over 95% capacity. Over the years, the school district has been able to rezone in order to divert students away from schools that are approaching full capacity. But the district-wide capacity will be reached soon.

The bond project list includes one new high school in the Oak Ridge feeder zone, one new junior high school in the Conroe feeder zone, one new intermediate school in the Oak Ridge feeder zone, two new elementary schools in the Oak Ridge feeder zone, adding a science classroom at Knox Junior High, and completing the classroom build-out at Stewart Elementary. The bond will also include major renovations of Austin Elementary School and Conroe High School, and address district-wide needs such as safety and security, drainage improvements, technology, and buses.


What we looked for

In determining our support for this bond, we researched the following aspects:

-          How many new facilities are being built, and on what basis?

-          What is the demographic projection for the district, and was this incorporated into the proposal?

-          What is the useful life and conditions of current facilities?

-          Will the bond overburden our tax base, making tax rate increases inevitable? Or, will the impact of the bond be absorbed over a relatively short period of time so that the tax rate can be lowered as the tax base increases, as has been done in recent history?

-          Why is eminent domain being used in Oak Ridge North, and what does that tell us about possible future uses of this power?


Our findings

CISD is well run

We found that the necessary demographic studies had been done and were the driving force behind this bond proposal, compelling the need for new schools. Additionally, the two major renovations of Austin Elementary and Conroe High School will allow for better safety, modernization, and life extension. CISD currently has 33 buildings being used that are over thirty years old.

CISD has a history of good stewardship
CISD has a history of lowering the tax rate as the tax base increases. The last school bond the district passed was in 2008. Since then, CISD has not issued the full capacity granted by that bond, which shows that they are deploying bond resources based upon need, rather than spending money just because they can. This is an important trait going forward. Upon this writing, gas was purchasable in Spring for $1.75/gallon. (With the Kroger discount.) While that may be good news for consumers, it is devastating news for the Texas oil industry and all of its supporting resources. The future economic outlook in relation to oil prices may also have an effect on the current high growth rate in the district, and therefore, the ability to pay this bond back. Despite the district’s history of good stewardship in relation to spending bond money, we would like to see a resolution from CISD committing to the deployment of the bond with an eye toward the energy industry and its impact on growth.

In line with this pace of deployment, we have to commend CISD for using their surplus on hand to pay down a large portion of the $92 million dedicated to “district-wide needs.” Many of these needs we believe should be handled with normal operational cash flow, and we recommend that the board, looking forward, use their budgeting process to absorb a lot of these costs between now and the next bond. By using their cash on hand, the district was able to reduce the size of this bond by approximately $38 million. That means we are also saving the interest on that amount of money over the period of bonding that would have been utilized. The district should work over the next seven years to eliminate future interest costs on “district wide needs.”


Eminent domain will hopefully not be used
To build the new high school in Oak Ridge North, eminent domain may be required. While we are not advocates of eminent domain, we believe the district may soon exhaust all other options, as negotiations are ongoing. The footprint necessary for the high school is so large that there are only two potential locations, with one of those two being in a flood plain and therefore unusable. The other parcel of land, off of Riley Fuzzel Road, has two pieces: 37 acres were acquired from Toll Houston TX LLC for $5.7 million, and an additional 46 acres adjacent to this the district has offered to purchase for $5.6 million. No homes are on this land, and to CISD’s credit, they have set the property they desire away from the commercially valuable frontage road in order to leave that area with the current owner. Hopefully a deal can be made and eminent domain will not be necessary.


Summary

The school district has grown, and will continue to grow. At 90% overall capacity, CISD is past the point at which districts tend to consider expansion to accommodate growth. Schools are overcrowded and the new schools are needed for both current and future needs. This exceptional year of appraisal growth has made the recent budget surplus possible. The district used this surplus wisely, as they have also done in the past, when they once built an entire school – Wilkerson Intermediate – from surplus funds. Their practice of slowly deploying bond assets will create a temporary growth in our overall school bond debt. However, within eight years we will have less debt than we have today and at 5% annual growth, well below the current rate, we will have an asset base 50% larger, and our tax rate should then decrease. For these reasons, we support the CISD bond.