DALLAS -- The Texas Bond Review Board has canceled plans for a pilot refunding program that was intended to help revive the board's troubled school bond bank program. "The Texas treasurer recommended that we not do a refunding at this time," the board's executive director, Albert Bacarisse, said yesterday.

"We don't feel the interest rates would make it feasible."

Bacarisse said the Bond Review Board decided not to move forward with the school refunding pool at a meeting earlier this month when representatives from the state Treasury and other agencies expressed concerns that the rise in interest rates had reduced potential saving to school districts.

In January, Bacarisse and other Bond Review Board staff suggested that more than 200 of the state's 1,050 school districts could benefit from the proposed $25 million to $50 million refunding program, which was designed to reduce the cost of debt issuance by using a school bond pool. Under the bond bank program, the Texas Treasury would issue revenue bonds to buy local school district debt issues.

But interest rates continued to rise after the suggestion was made, drying up refunding business, and the Texas Treasury failed to reach a contract agreement with First Southwest Co. to serve as the program's financial adviser.

At the same time, officials did not want the bond pool to emphasize restructuring Texas school debt, which would help districts comply with tax rate caps under a new school finance law.

"We weren't aiming just for a restructuring of debt," Bacarisse said. "We wanted to achieve a savings for districts."

Despite the cancellation of the refunding program, he said the board could consider establishing a school bond bank for a new-money issue.

"As far as I know, it is not a dead issue" and could be discussed at the board's July meeting, Bacarisse said.

However, some industry sources are skeptical that the program will ever get off the ground, pointing to the serious obstacles that already have delayed the development of a bond bank for five years.

Larry Jordan, managing director for First Southwest, which had been working on the program, could not be reached for comment yesterday.

The school bond bank program, initially envisioned as a $750 million program, was approved by the Texas legislature in 1989 to help the state's school districts save money on the cost of debt issuance.

But the program ran into problems, including a long postponement while the state got a clarification from the Internal Revenue Service on whether it could use the Texas Permanent School Fund guarantee for the bond bank.

Although the IRS said yes, other obstacles also emerged, including opposition by investment bankers. The end result was years of delays.

Meanwhile, the state has spent more than $500,000 on salaries and other administrative costs during the past several years for a program that has not been realized, although Bacarisse said not all the effort has been wasted.

For example, he said, the school bond bank staff has calculated outstanding debt and other statistical information for all school districts in the state. Such information was useful when the Texas legislature adopted a share-the-wealth school finance law and when rich and poor school districts subsequently challenged the law in court.

While the school finance law is still tied up in court, Bacarisse said the school bond program could be used in the future to help meet state mandates to redistribute wealth.

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