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MuniCREDIT Insights | Weld County School District No. RE-4 (Windsor), CO
We look at the financial and ESG trends facing Weld County Re-4 and spot some challenges for this oil and gas dependent entity.
January 23, 2023
The Weld County School District No. RE-4, CO (“Weld RE-4”), is coming to market with a $271 million G.O. issue, Series 2023. Since the deal will be eligible for the State Intercept mechanism, S&P will rate it AA, one notch higher than the underlying GO rating of AA-. Moody’s rates both State Intercept and underlying GO the same, at Aa2.
The new bond issue will effectively triple the District’s GO debt level and comes in response to explosive growth in the local population and school enrollments. The new superintendent Michelle Scallon, a popular local figure, was able to secure voter passage of a $271 million bond measure to build schools and renovate facilities and approval of a $5 million mill levy override tax for operational expenses.
Strong Financials, Volatile Tax Base
The County’s strong demographics are shown in Table 1, with data extracted from our web-based credit tool, MuniCREDIT Online:
Table 1.
Recent financial trends and ratios have also been favorable, although debt service as a percentage of total government expenses has been steadily rising and will certainly spike further following issuance of the Series 2023 bonds. In a similar vein, the new issue will dramatically reverse the recent trend of declining debt ratios.
Table 2.
Tax base concentration and volatility is a key area of concern here. Located in the Northern part of the State, Weld County’s economy is driven primarily by fossil fuel extraction. In fact, oil and gas properties accounted for 47.4% of the District’s 2022 Assessed Valuation (AV). Two energy development companies (PDC Energy Inc. and Extraction Oil & Gas LLC) accounted for 39% of AV.
As we all know, over the past three years, the combination of the pandemic, the war in Ukraine and the softening economy has led to significant volatility in energy prices. Oil production in the northern region, where Weld County is located, fell by 11.9% in 2020 and another 10.4% in 2021 before rebounding by 6.2% as of June 2022.
Local Charter Schools
The District is an authorizer for a local charter school, Windsor Charter Academy, which is accounted for as a component unit of the District.
Another charter school is expected to join the district this fall. In October 2022, the Weld RE-4 school board voted unanimously to approve the charter of American Legacy Academy, or ALA, for the 2023-24 school year. The contract for a K-8 school across two campuses starts next summer and will initially run through June 2027.
Ascent Classical Academy of Northern Colorado is also located in Windsor but is authorized through the state.
(Note: Financial data from School Improvement Partnership (SIP) for all bond-financed charter schools will be available soon through DPC Data. Contact us at sales@dpcdata.com for details).
ESG Considerations
The Windsor School District’s climate risk exposure is deemed moderate, based on the ESG scoring methodology developed by our partners at Spatial Risk Systems (SRS), and its Social Vulnerability and Community Resilience Scores compare very favorably with its peers with Colorado, as shown in Table 3.
Table 3.
As can be expected from a fossil fuel dependent area, the District’s Environmental Risk Score is in the second highest decile relative to other school districts in the State and around the country.
In March 2022, a federal appeals court decision rejected Weld County’s request for a stay of the Environmental Protection Agency’s (EPA) decision requiring the county to strengthen its smog-reduction measures. Weld County had sued the EPA to try to keep northern Weld County, and its hundreds of oil and methane gas wells, from having to implement protective measures to reduce pollution.
Ironically, the District appears to have ample resources to manage the transition to net zero (see Table 4), assuming it can diversify its economy away from oil and gas extraction. This is certainly not an easy feat to accomplish in the short to intermediate term.
Table 4.
Conclusion
The Weld County School District No 4-R is a perfect illustration of the dilemma facing areas of the country who are historically dependent on fossil fuel extraction. While the District is currently in excellent fiscal condition, its finances will be tested by sharp growth in student enrollments leading to higher capital expenditures and increased debt level, while its tax base is facing pressure on the environmental and sustainability front. It will be interesting to see how the District will manage these challenges over the next few years.
Note: for more details on our MuniCREDIT Solutions, which covers over 24,000 municipal obligors across all major sectors, please contact us at sales@dpcdata.com.
Disclaimer: This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase and sale of any security. Although the information contained in this report has been obtained from sources we deem reliable, we do not guarantee its accuracy, and such information may be incomplete or condensed. Investors should obtain and read the official statements related to the securities discussed. All opinions are only valid as of the report date and are subject to change without notice.
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