MOODY'S NEWS - Texas Supreme Court Upholds School Finance Law Texas Supreme Court Upholds School Finance Law: Attorney General Will Not Approve Unlimited Tax Issues Without Further Clarification By Court

Business Wire, Feb 6, 1995

NEW YORK--(BUSINESS WIRE)--Feb. 6, 1995--On January 30, 1995, in a 5-4 decision, the Texas Supreme Court ruled that Senate Bill 7 (SB 7) which addresses funding of school districts, is constitutional. This ruling includes the ``wealth sharing'' portion of the bill as well as the provisions for financing of capital facilities. This decision overturns an earlier decision by the Travis County District Court which found that the financing of capital facilities remained constitutionally deficient. However, it should be noted that the Supreme Court emphasized that the constitutional challenge based on the inadequate provision for capital facilities failed only because of the lack of evidence to support the challenge. The court further stated that, ``Our judgement in this case should not be interpreted as a signal that the school finance crisis in Texas has ended''. As a result of the decision, the $15.00 per $1,000 assessed valuation tax cap, the maximum combined property tax rate for all ``new'' debt and operations and maintenance, remains in effect. To the extent the Legislature takes no further action to alter the tax rate cap, certain districts may be constrained in issuing additional debt to fund ongoing capital improvement programs while maintaining reasonable and prudent debt structures.

In addition, the Texas Attorney General's office which is required to approve all bond issuances, has raised concern regarding the Court's interpretation of Section 20.09 of the Education Code. This section in part addresses the issue of when a local election is required to exceed the $15.00 per $1,000 assessed valuation tax cap for ``new'' debt as well as ``old'' debt. The Attorney General's office has informed us that they will not approve any General Obligation unlimited tax bond issues until this issue is clarified. Moody's will continue to monitor both the impact this may have on the credit position of any of the more than 600 school districts currently rated, as well as further legislative developments. For a more detailed discussion of SB 7 see Moody's comment, ``Texas School Finance'' dated August 4, 1993.

CONTACT: Anita Russell, Assistant Vice President

212/553-081

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Chris Evangel, Vice President/Supervisor

212/553-1927

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Dennis Porcaro, Jr., Assistant Vice President

214/220-4347