The largest public school system in Texas will be run by state-appointed managers starting later this year as part of a takeover announced Wednesday by the Texas Education Agency.
Houston Independent School District, which had $2.4 billion of bonds outstanding as of June 30, was targeted for takeover on the basis of academic performance.
The TEA's move came after the school board last week voted to end litigation the district filed to block the takeover the state education agency
The 8-1 vote was aimed at stopping "further expenditure of district resources as there is no further legal recourse." In January, the Texas Supreme Court vacated a lower court's injunction preventing the takeover
In recent weeks, state and local elected officials protested the pending takeover given the district's overall state performance
Rating agency analysts, who have been watching for a potential takeover, were not immediately available to comment.
In February, Moody's Investors Service said the district's underlying Aaa issuer rating "is anchored by strong credit fundamentals even as Moody's continues to weigh the potential of TEA action following the recent ruling by the Texas Supreme Court that overturned an injunction against the TEA."
It added that the district's governance and performance issues have not resulted in allegations or findings related to administrative financial mismanagement.
S&P Global Ratings, which has an underlying AA-plus rating for the district, said in February it will continue to monitor the takeover situation to determine if there are any related consequences to district ratings.
Both agencies assign triple-A ratings to Houston ISD bonds sold through the Texas Permanent School Fund's
In a lengthy letter to district officials, Mike Morath, the state's commissioner of education, said he will appoint a board of managers and a superintendent as an intervention action starting June 1 because one school received "unacceptable" academic accountability ratings for several consecutive years and the district has been assigned a conservator for more than two school years.
Morath acknowledged the addition of several new board members since 2019, the board's attempts to make progress, and the recent decision to end litigation.
"But prior academic performance issues continue to require action under state law," he said. "Even with a delay of three full years caused by legal proceedings, systemic problems in Houston ISD continue to impact students most in need of our collective support."
Houston ISD Superintendent Millard House II said improvements have been made with 40 out of 50 district schools no longer having D or F accountability ratings.
"As we wrap up this school year, my focus will be on working with our board of trustees and the TEA to ensure a smooth transition without disruption to our core mission of providing an exceptional educational experience for all students," he said in a statement.
Houston Mayor Sylvester Turner blasted TEA for its lack of community engagement or transparency.
"There is no example of a successful takeover by the state of a local school the size of HISD," he said in a statement.
The district, the eighth largest in the nation, serves more than 194,600 students, more than 60% of whom are Hispanic, in 274 schools.
