The San Diego Unified School District (SDUSD) has sold $240 million Tax and Revenue Anticipation Notes (TRANs) for fiscal year 2012-13 to cover the fiscal gap left by the lack of, and delayed, state funding. The negotiated sale occurred Aug. 1, and the TRANs were issued with two maturity dates: Jan. 31, 2013 for $155 million (Series A-1 Notes); and June 28, 2013, in the amount of $85 million (Series A-2 Notes).
Since Fiscal Year 2007-08, the state of California has been deferring revenue payments to SDUSD in order to manage cash flow challenges at the state level. These ongoing deferrals require the school district to seek higher short-term borrowing amounts through the use of TRANs from the financial markets.
Based on current projections, the estimated total deferred cash payments for July 2013 and August 2013 are $84 and $131 million, depending upon the result of the governor’s November tax measure. When the school district recently adopted its budget for fiscal year 2012-13, it needed to overcome the state’s cash deferrals and a 2012-13 budget deficit of $120 million. The deficit was reduced by collective bargaining negotiations and programmatic adjustments. The state deferrals are funded by a TRANs note and inter-fund borrowing.
“As a prelude to seeking the TRANs, the school district’s finance team diligently pursued a rating review with Standard and Poor’s,” said Adam Bauer, principal of Fieldman, Rolapp and Associates and financial advisor to the school district. “As a result of the strategies applied to balance the budget and the district’s firm commitment to its fiduciary responsibilities, the TRANs were assigned a short-term rating of ‘SP-1+,’ which is the highest short-term credit rating available. The district was able to achieve the highest short-term rating due to the district’s strong underlying general credit characteristics, projected available fiscal year 2012-13 general fund balances at note maturity periods, and inter-fund borrowing sources.”
“In recent years, many school districts have been using TRANs to offset the difference in timing of expenditures and receipt of revenue,” Bauer explained. “Given the credit worthiness of the school district, the conservative nature of the borrowing, the set-aside structure, and the highest investment grade short-term rating, the district was successful in attracting investors to the notes. There was significant demand for the short-term maturity of January 2013, which helped to lower the rates and cost of borrowing. The TRANs will provide the school district the funding source to bridge the deferral period and manage the month-to-month cash flow requirements.”
