Investors unfazed by schools' tale of financial woe.

Prices of L.A. school district debt have been holding up

Investors in debt securities issued by Los Angeles Unified School District apparently have disregarded its pleas of dire financial woes in attempts to ride the "pity curve" to wring salary concessions from the teachers union.

United Teachers-Los Angeles at least so far, though, has refused to buy the pleas that all district employees, including teachers, must accept a 3 percent pay cut retroactive to September to balance the budget. The district's board of education voted the cuts Nov. 4 as part of a $274 million budget reduction program to offset a projected shortfall, and Superintendent Bill Anton warned it was balance the budget or go into bankruptcy.

Despite Anton's sounding the "B-word," however, prices of district debt issues have not suffered, reported Jerry D. Phillips, senior vice president of bond sales at Sutro & Co., a San Francisco-based securities house. He cited the district's Oct. 22 sale of $46.1 million refunding certificates of participation due 1993-2008, which still are trading at their offering price.

Three different syndicates offered bids for the COPs, Phillips said, and the winning syndicate's bid was for an average interest cost of 6.47 percent, which he termed a "very attractive or low rate" for the district. It is using the proceeds for advanced refunding of a 1988 COP issue with a 7.614 percent yield, said Robert Booker, the district's chief business and financial officer, which will save the district some $2 million.

Last month's issue is the third this year by the district, Booker remarked. The other two, he said, included: $240 million of 1991-92 tax and revenue anticipation notes and $62 million certificates of participation series 1991A for a capital facilities project.

A rumor had been circulating that the district was issuing COPs for operating purposes, which would be illegal, rather than for intended capital purposes, such as a computer system and portable classrooms, but Booker denied this. Rumormongers, he indicated, had confused the COPs with the TRANs, which regularly are issued by school districts for short-term cash needs until anticipated taxes and other revenues actually are received.

Meanwhile, Standard & Poor's Corp., the nationally recognized bond rating service, affirmed its ratings at the end of October for the L.A. district's issues, reported Katherine Evans, vice president for tax-exempt finance. She referred to ratings of "A +" for district COPs and "SP-1 +" for district TRANs.

Such ratings, Evans said, reflected the district's low debt burden -- $226 million of COPs and $240 million of TRANs -- the area's diverse economy and tax base and strong enrollment-growth trends. However, she noted, such positive factors were tempered by a weakened economy and stressed fiscal operations -- largely because of stress from the state for the past 12 to 18 months.

Indeed, Evans added, the L.A. district's "outlook has been negative since June. We're looking at (our ratings for) the district on an ongoing basis."

To be sure, observers suggested, things could come unglued if UTLA teachers fail to buy into the district administration's pity curve ploy and instead at a union vote, slated for this month, opt to strike over the pay cut issue. While the district's board unilaterally voted the scheduled salary cuts last month, they are not scheduled to show up in pay envelopes until Dec. 11.

UTLA's labor contract with the district expired last June. Since a new contract remains to be negotiated and ratified, the district's board legally could decide unilaterally on the teacher salary cuts; likewise, UTLA members, working without a valid labor contract, are free to strike.

A strike, of course, would reduce revenues from the state that are based on "average daily attendance," which is budgeted to rise to 686,266 pupils in the current 1991-92 school year from 669,590 in 1990-91 and 650,329 in 1989-90. Even if the scheduled salary cuts are agreed to by UTLA teachers, though, "further budget adjustments" may be required, confided the district's Booker, after he updates the budget at the end of December or the first of January.