DALLAS — Utah’s largest school district will sell $196 million of general obligation bonds next month with its future as a single school district — and its triple-A rating — rating possibly in peril. The Jordan School District in Salt Lake County landed on Fitch Ratings’ negative credit watch after the introduction of two November ballot measures designed to split the school system into as many as three parts.The district, which is divided by the Jordan River, has an estimated population of 390,000 and a projected 2008 student enrollment of 80,000. While the west side of the district is growing rapidly and most there will not get to vote on the matter, the wealthier and older east side is relatively stable and the base of the secession movement.The eastern portion of the district — encompassing the cities of Alta, Cottonwood Heights, Draper, Midvale, and Sandy — proposed seceding in August. That prompted another section within the city of West Jordan, on the west side, to propose another separate district.“Secession of the eastern portion is of particular concern because it represents 58% of the current district’s tax base and 48% of its student enrollment,” noted Fitch analysts Alan Gibson and Amy Doppelt in affirming the AAA rating. “If either of the secession proposals is successful, a new district will be responsible for a portion of the outstanding district bonds, resulting in existing bondholders receiving their debt service payment partially from a new entity.”The battle over dividing the district comes as the state is embroiled in a campaign over school vouchers, an issue that shares the November ballot. The voucher question will ask voters whether they want to repeal a recently passed state law that would create the broadest school voucher system in the nation, providing private tuition grants of $500 to $3,000 to families at all income levels.A bill allowing the voucher ballot passed the Utah House in February by a single vote before quickly gaining Senate passage and Gov. Jon Huntsman Jr.’s signature. In response to the bill’s passage, the Utah Education Association successfully petitioned for a referendum on the issue, claiming voters should have the final say.The voucher program is projected to cost taxpayers $429 million over the next 13 years, according to legislative fiscal analysts.Meanwhile, in the Jordan district, if the voters approve a split, no new or outstanding bonds would be in danger of default. Under state law, all bonds issued before the secession would be secured by property in the original tax base boundaries.Debt service on the current offering and all parity obligations will be divided proportionally among the districts and will retain an unlimited property tax levy authorization.Despite the potential upheaval, Moody’s Investors Service maintained a stable outlook on the debt, with a Aa1 underlying rating and a Aaa on the bonds based on their backing by the Utah School Bond Guarantee Act. The district earns AAA ratings from Fitch on its underlying credit as well as on the state-backed bonds.Standard & Poor’s, which no longer rates the district’s debt, raised the underlying credit to AA-plus from AA in June “based on the district’s strengthening economic base and strong financial performance, as evidenced by operating surpluses, healthy reserves, and low, manageable debt burden despite future capital needs.”Burke Jolley, deputy superintendent for business services, said Fitch’s caution is due to uncertainty over how the new districts will function.“There are so many unknowns, because no one’s gone through this in Utah before,” he said. “Fitch is going to have to find out the underlying ratings of the new entities, and it’s a fear of the unknown.”The new bonds are scheduled to sell competitively on Oct. 16, with George K. Baum & Co. acting as financial adviser.
Although the secession drives threaten to dismantle “a great school district,” Jordan School Board president J. Dale Christensen said the threat should not affect the upcoming bond sale, which he says is the state’s largest single school district issue.“I’m not a bit concerned about the sale itself,” he said. “It will be a strong sale, but politically, it’s very strange.”The board is divided between east and west, with board members from the east siding with mayors from the towns on that side of the Jordan River. Most of the bond money from the upcoming sale will finance schools on the west side of the river.Keeping up with a projected 32% growth rate over the next decade will require the district to issue $975 million more in bonds, according to a district report.If the district were to remain unified, that would mean a tax bill on a $300,000 home averaged over the years 2008-2017 of $1,190, according to a feasibility study by proponents of the split on the east side. In a divided district, the taxes on a home in the east would be $1,025 compared to $1,369 in the west. If the district splits, taxes in the west would have to rise 15% higher than they would in a unified district, according to the study.With 58% of the tax base, the east currently has 43% of the students and would get only 25% of future bond proceeds under a unified district, according to the study. Proponents of the split say that smaller districts result in smaller schools with more ability to cater to the needs of the student population.But Christensen believes that advocates of the split don’t understand the complexities of running a school district.“It changes educational opportunities because of specialty schools,” he said. “It affects transportation — the maintenance shop is on the east side.”The fairness of the vote is also in question because only people living within the proposed new districts get to vote on the issue. Except for the section within the city of West Jordan that is also considering secession, voters in the western half of the district don’t have a say on an issue that will affect their taxes, Christensen said.“If the whole district could vote, it would not pass,” he said. “At first, I thought this didn’t have a prayer of a chance of passing. But as we get closer, I begin to wonder.”To allow the ballot issue to go forward, the Utah Legislature had to rewrite the law on such initiatives. Under previous law, the county and 100% of the cities in the county had to support putting such a proposal on the ballot. But in a special session last month, the Legislature reduced the threshold to governments representing 80% of the population in the county. That bill overrode Salt Lake County’s objection to the district split.Although constitutional challenges to the voting procedure are considered likely, state Attorney General Mark Shurtleff issued an opinion in August stating there was a “substantial likelihood” the law under Senate Bill 30 would hold up in court.The major backers of the split are the mayors of the towns in the east, whom Christensen calls “powerful, influential men.”Unlike most secession drives, the Jordan ballot initiative has generated little grass-roots intensity and surprisingly light press coverage, he said.“I think it’s because all the press coverage is going to the voucher issue,” Christensen said.So far, various organizations and contributors have poured $2.6 million into the voucher campaign. The National Education Agency has contributed $1.5 million to support opposition, while Utah entrepreneur Patrick Byrne, founder and head of Overstock.com, has put $290,000 behind a “yes” campaign.Proponents say that providing state-funded grants of up to $3,000 per pupil for private school would improve individual education while forcing the public schools to improve the quality of their educational systems.Opponents say that instituting vouchers would further undermine public schools that rank lowest in the nation in per-pupil spending.Jolley said the verdict is still out on how vouchers would affect districts like his.“The amount [of voucher money] that would go with the child is going to be about half of what we would spend,” he said. “We would have fewer kids to serve.” Meanwhile, the Jordan district could face a third secession movement as another section seeks to put together a ballot initiative next year. Christensen, a former teacher and principal in the district for 35 years who holds a Ph.D and three other education-related degrees, hopes the Jordan Schools will remain intact after November, muting further mutinies.“All of us have been taken aback a bit,” he said. “We’ve never had anything like this come up. Our district is an incredibly good school district. It’s not broken.”
