Fitch Ratings downgraded Harlandale Independent School District’s bond rating from AA to AA-, the agency announced Monday.
When an entity’s bond rating declines, future bond debt could be more expensive to repay. A rating downgrade could lead to the district paying more for new school construction or renovations financed through a bond.
Fitch cited heightened concerns about Harlandale’s finances and operations after a Texas Education Agency investigation found issues with contract procurement, unauthorized purchase agreements, and Open Meetings Act violations.
Commissioner of Education Mike Morath told the district in late June that he intended to remove the elected board of trustees and replace it with a board of appointed managers. He also announced an impending appointment of a conservator and an anticipated lowering of the district’s accreditation status to “accredited-warned.”
The district appealed his sanctions in early August and is awaiting a final decision.
“Today’s rating actions also reflect Fitch’s declining view of Harlandale ISD’s revenue growth prospects following several years of continual declines,” a statement from Fitch read. “Average daily attendance, a key driver for state funding, has historically been above 13,000. However, following several years of enrollment declines, average daily attendance for fiscal 2019 was estimated at 12,485.”
Last August, Fitch affirmed Harlandale’s rating at AA and noted that the outlook was stable.
Enrollment frequently plays a role in school district bond ratings because of its impact on revenue. For example, in 2017, Fitch affirmed South San Antonio ISD’s rating at an A+ but noted that the rating outlook was negative, in part because of declining enrollment trends.
Fitch noted that Harlandale’s rating is “sensitive to the findings and pending corrective measures” from the TEA investigation.
“Given the district’s robust fund balance position and ability to adjust expenditures, Fitch believes that the district has the capacity currently to absorb any financial impact from what TEA has discovered to date without impairing its strong financial resilience,” the statement said. “However, any further discoveries of improper actions with financial implications could weaken Fitch’s assessment of both financial resilience and budgetary management.”
Harlandale voters last approved a school district bond in 2015. Money from the bond was devoted to upgraded security and surveillance systems, the replacement of Carroll Bell and Vestal Elementaries, resurfacing of parking lots, and the construction of the new STEM Early College High School, among other things.
“[A]s stated in the report the key rating factors remain strong,” spokesman Albert Rosales said via text. “We are confident that we will continue this momentum and keep moving forward.”
Harlandale scored an A on the State’s Financial Integrity Rating System of Texas based on data from 2018-19. Approximately 87 percent of school districts gained this rating, the highest possible score.