Dysfunction cited as state government takes over a Texas school district

Bloomberg News

The Texas Education Agency replaced the entire leadership of the South San Antonio Independent School District.

The move announced on Wednesday comes after nearly two decades of dysfunction "resulting in diminished student academic outcomes, poor financial controls, public distrust, and multiple TEA investigations," the agency said in a statement.

The district, which has more than $118 million of outstanding debt, will be run by a seven-member board of managers made up of San Antonio-area residents appointed by TEA, which also named Saul Hinojosa as superintendent. An agreement reached in September 2023 stayed enhanced oversight of the district, while a monitor TEA had appointed for the district was elevated to conservator. 

South San Antonio ISD did not immediately respond to a request for comment. 

The district had $112.37 million of general obligation bonds and $5.76 million of notes outstanding as of Aug. 31, according to its fiscal 2024 annual financial report. The latest debt issuance was a September sale of $20.825 million of unlimited tax refunding bonds. The district's GO bonds are rated triple-A through the Texas Permanent School Fund's bond guarantee program. 

The district, three miles southwest of downtown San Antonio, enrolled 7,429 students in 2023-2024, according to the official statement for its last bond sale, down from 8,533 in 2019-2020.

S&P Global Ratings downgraded South San Antonio ISD's underlying A rating to A-minus with a negative outlook in August, warning of a one-in-three chance of a further downgrade in the next two years "if the district is unable to restore budgetary balance in the absence of federal stimulus aid." 

The rating agency pointed to a structural imbalance, declining enrollment, and "elevated governance risk factors" as drivers for the downgrade. 

Fitch Ratings' new local public financing rating criteria led to a one-notch upgrade of the district's underlying rating to A with a stable outlook in September.

At that time, Fitch said a downgrade could be triggered by "additional findings or corrective measures by the Texas Education Agency that result in a material negative impact on the district's financial profile," while an upgrade could result from "sustained improvement to the district's governance practices, leading to the removal of (TEA) oversight."

Lauren Wynn, a Fitch public finance director, said on Wednesday that no near-term action on the district's rating is anticipated. 

"Fitch will closely monitor the progress of the new board of managers and superintendent and their impact on the general creditworthiness of the district," she said in a statement.

TEA reported that in addition to South San Antonio ISD, 13 public school systems, including the state's largest, Houston ISD, and charter schools have conservators, four have monitors, and four have state-appointed boards of managers.