web analytics

COVID-19 Takes a Toll on Bond Programs, School Construction Projects Delayed

Feature Photo: Architectural rendering of a stadium for Killeen ISD. Courtesy: Killeen ISD.

Posted: 4-6-20

by Adolfo Pesquera

The postponement of school and municipal bond elections have added another layer of uncertainty to a construction industry already buffeted on several fronts by the coronavirus pandemic.

A Virtual Builders Exchange analysis of May 2 election postponements found 17 school districts around the state have postponed referendums on almost $2.9 billion in proposed construction. Most of the various school boards have rescheduled these elections to November 3rd, while a few have cancelled proposed projects altogether.

The Texas Bond Review Board came up with a higher number, however. Rob Latsha, the state agency’s executive director, told VBX late Thursday that their staff had tabulated $3.9 billion in school district and municipal bond propositions that were postponed or cancelled.

“As far as I know, none of the school districts cancelled,” Latsha said. However, the cities of Lake Jackson and Temple cancelled bond propositions of $62.4 million and $32 million, respectively.

The Texas Bond Review Board calculated school districts accounted for $3.5 billion of the total, and Latsha added, “This is a dynamic figure. As government entities meet, it’s quite likely we’ll see other postponements as well. The good news is, looking at school districts, they’re just postponed.”

Latsha attributed the postponement of elections primarily to stay-at-home orders resulting from coronavirus contagion risks, and not to the turmoil in the municipal bond markets.

The implications of six-month delays in funding are profound for design professionals, general contractors and subcontractors that rely upon publicly funded projects to sustain their operations.

One industry insider with a major architectural firm in Houston said the postponements have already forced layoffs at architectural firms. Even though the bonds have yet to get voter approval, architects typically begin working on designs well in advance.

“They do this so that when bond propositions are passed, they’re already ahead of schedule,” said the insider, who requested anonymity. The uncertainty about how events will unfold in the coming months has caused many school district trustees to put activity on certain future projects on hold. The end result is layoffs now.”

The COVID-19 will have less effect on projects that were approved by voters in prior years assuming the disruption to construction activity is limited to weeks, not months. It can take several years for funds from an approved bond proposition to be exhausted.

However, bond programs are rolled out in phases. For those phases where bonds have been sold in the municipal bond market, school districts have cash in hand to proceed. But the municipal bond market is also in turmoil.

On March 17, the Los Angeles Times reported that La Cañada Unified School District was scheduled to sell $30 million of school bonds but instead opted to wait because of how badly the municipal bond market had been disrupted.

The following day, Charles Schwab reported the muni bond market experienced a steep drop–from a plus 3.7% on March 9 to negative 1% by March 13:

A move of that magnitude in such a short period of time is extremely rare for the muni market. Basically, munis are feeling the impact of COVID-19 on two fronts. First, this is a unique trading environment in which liquidity is strained. Second, there are longer-term concerns about the impact that a sudden and severe slowdown in economic activity could have on municipalities’ finances.

By the end of March, the muni bond market was essentially in free fall.

School districts are the largest user of bond programs, but cities and states also rely on them. The City of Pflugerville postponed its $96.7 million bond proposition to Nov. 3 as well.

Nonprofit healthcare systems that had scheduled bond-based debt issuances are also hitting the brakes, according to Modern Healthcare.

Stabilization of the muni bond market is largely dependent on how soon the pandemic is brought under control.

The $64,000 question is when will that happen, and will a Nov. 3 date for voters still be too soon?

It’s also concerning that other school districts were already considering calling for bond elections in November. One of these is the San Antonio Independent School District, which has been considering a $1.25 billion bond proposition to upgrade 43 of its 90 campuses.

The following is a list of known Bond election postponements and the projects outlined within the various Proposals:


adolfo@virtualbx.com

Related Images

Industry News
By |2020-04-06T08:20:36-06:00April 6th, 2020|Feature Story, Industry News|

About the Author:

Adolfo Pesquera (Reporter/Editor) is a veteran news journalist. He has worked for Hearst Corp., American Lawyer Media, News Corp and Freedom Communications. His work has been published in newspapers and magazines across the USA. He is a journalism graduate of UT-RGV. He writes, edits and creates digital pages for VBX.

Leave A Comment