Denair Unified School District's bond rating falls

naustin@modbee.comDecember 29, 2013 


Denair High is part of the Denair Unified School District, now one of less than five districts in California with a “triple-B” rating.

DEBBIE NODA — The Modesto Bee Buy Photo


    Property owners in the 56-acre Denair Unified School District will pay $45.9 million over the next 30 years to retire school bonds passed in 2001 and 2007. Here are the bond issues:

    •  REFINANCING 2012: The district took advantage of lower interest rates to pay off $3.8 million in debt owed on the first issue of bonds from the 2001 election. These so-called refunding bonds were sold in early 2012, when the district had an A+ rating from Standard & Poors, saving the district $434,000. The district’s rating has fallen twice since then, now standing at BBB, a low investment grade rating. With interest, the bonds will cost $4.9 million over 10 years.

    •  MEASURE K 2007: Voters approved $13 million in bonds to build school buildings. The measure passed with 63 percent approval. The district sold $7.5 million in bonds to build facilities for Denair Middle School and upgrade technology. With interest, the total cost is $14.1 million. An additional $2.9 million in bond anticipation notes were sold in 2009 and paid off with a $3.5 million bond issue in 2011. The 2011 issue stretches out payments until 2043, raising the total cost to $18.9 million – 6.5 times the initial amount borrowed in 2009. Bonding authority only counts the principal: With $7.5 million and $3.5 million in bonds sold, the district has $2 million remaining to spend from Measure K.

    •  MEASURE P 2001: An $8.2 million bond measure got overwhelming approval, passing with 82 percent of the vote. It was to be used to build a new library, science wing, band room and gym/cafeteria for Denair High School. All its schools were to get security cameras, walkways, better wheelchair access and improved sewer, gas and electrical systems, according to news reports at the time. There were two bond sales from Measure P: $5.2 million in 2002, which after savings from the 2012 refinancing cost $11.4 million, and a second sale of $3 million in 2003 bonds that with interest cost $7.6 million.

    Source: Official statements of bond issues,

— In another blow to the financial standing of the Denair Unified School District, Standard & Poors this month downgraded its bond rating to BBB, just two notches above junk status.

While the change will not add to Denair’s red ink in the short term, it highlights that national notice is now being paid to the district’s grim balance sheet.

“That is a relatively low rating for a California school district,” said Standard & Poors analyst Matthew Reining on Friday. He estimated there are less than 10 “triple-B” ratings among the roughly 500 California districts given ratings.

To be clear, school bond money does not mix with operating funds, the pot of money Denair will empty before year’s end unless it cuts expenses. Bond debt is entirely paid by local property taxes. But Reining said the prospect of potential bankruptcy or state takeover is a risk they consider.

“It’s our opinion that the general fund performance matters for the rating,” he said.

“The lowered rating reflects our view of the continued deterioration of the district’s financial position,” notes the Standard & Poors published rationale. The firm will reconsider the rating this summer, watching to see if the district gets a state overseer or if it succeeds in balancing its budget, the rationale says.

Denair’s triple-B makes it more expensive for the district to get short-term credit or refinance existing bonds, and it leaves bond investors likely taking a loss if they try to sell them. Investors hold $45.9 million in Denair Unified debt, in bond issues property owners will pay off through 2043.

“Right now that rating has nothing to do with the district – and it’s still investment grade, it’s just a low investment grade,” said interim Superintendent Walt Hanline. However, he added, “If we went out for a (short-term loan) right now, it would affect our ability to get financing. The county continues to be our credit line. But the county’s not willing to front us money past June 30.”

The Stanislaus County Office of Education has lent the district $1.3 million. About half is month-to-month cash flow help, and half is debt the district will need to pay back, Hanline said.

It is against that backdrop that a citizens committee and school board members will interview six superintendent candidates Friday, with two or three finalists likely to return for second interviews with the board on Saturday, Hanline said. The board expects to announce its choice Jan. 9.

Denair parents have become more active in recent months, speaking out at meetings and now forming a Facebook page. The page takes teachers to task for not settling and comments on teacher salaries.

With 76 percent of its operating money going to salaries and benefits, the district must rein in labor costs to slash about half a million dollars from this school year’s expenses. The district has not been able to reach a deal for this year with its teachers, and their salaries reverted to prerecession highs on top of ongoing seniority and education raises.

A fact-finding report, probably in the second week of January, will make recommendations for salary levels. The board committed to implementing the recommendations, and its nonunion employees agreed to follow suit. Denair Unified Teachers Association negotiators, however, have said they cannot agree to any deal without a membership vote.

The district had demanded an 11 percent cut, which if condensed into the year’s six remaining months would be a steep 22 percent taken from teacher paychecks.

But Hanline said decisions have to be made. “The report will be the facts and thus being horrified is not an option. It is what it is,” he said.

Bee education reporter Nan Austin can be reached at or (209) 578-2339. Follow her on Twitter @NanAustin.

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