Uncertainty around school finances could threaten district’s Aaa bond rating, says Hinson

A rendering of the new Crestview Elementary school under construction. That project is being financed by the bond issue approved by district voters in 2015.

A wave of elementary school rebuilds financed by the Shawnee Mission School District’s voter-approved $223 million bond issue in 2015 has been well received by many patrons — so well, in fact, that Superintendent Jim Hinson says he’s hearing from more and more parents who hope to see it continue.

“That’s a frequent question I receive now: ‘When’s the next round of rebuilds going to occur?'” Hinson said at a SuperChat question and answer session put on by the Shawnee Mission Area Council PTA at Hocker Grove Middle School earlier this week. “It’s a great question — and that could occur in the near future as well. We will have the possibility based on current assessed valuation growth to have another no-mill-levy increase bond issue — so no tax increase, your rate’s not going to go up — [in the fall of 2018] to early 19.”

But the district’s ability to borrow money at the extremely favorable terms it received for the 2015 bond issue could be affected by the prolonged uncertainty surrounding school finance in Kansas.

The school district started the year with roughly $21 million in total operating funds — including contingency reserves. The budget approved by the school board for this fiscal year called for approximately $5 million in deficit spending, which would have brought the total reserves down to around $16 million by the end of the fiscal year in June. But the prospect of up to $11 million in cuts to the district’s funding for the current fiscal year as the legislature looks to close a $350 million budget hole means it’s possible that Shawnee Mission could be starting a new fiscal year in July with just $5 million on hand — well below recommended reserve levels.

Hinson said that low reserve level may imperil the district’s current Aaa bond rating, the best rating available. Holding that bond rating allows the district to issue bonds and borrow money at low interest rates.

“[The bond rating agencies] look at several things. One of the things they look at are fund balances,” Hinson said. “So will low fund balances have an impact on our ability to borrow money? And the answer is yes. Will those fund balances potentially have an impact on our bond rating which impacts the interest rate? And the answer is yes.”

The state’s financial problems have not threatened the district’s bond rating to date because capital outlay expenses are funded through local tax dollars, not through funds delivered through the state financing apparatus, Hinson said.

“Since we don’t receive state money for capital outlay and bonded interest, the state’s fiscal issues haven’t impacted our bond rating, because we haven’t relied on the state,” he said. “We’ve been able to protect what we’ve been doing locally.”

Budget cuts, however, would force the district to tap much further into its reserves than expected, a factor unlikely to be overlooked during the next bond rating review.