Markets In Your Community

The Oklahoma Standard: Muni Bonds Play Vital Role in Post-Tornado Recovery

Witnesses described the tornado that struck Moore, Oklahoma, on May 20, 2013, as a “giant black wall of destruction.” When all was said and done, the town had suffered two dozen fatalities, 377 injuries and an estimated $2 billion in damages.

That disaster put the small Oklahoma City suburb at the center of the national spotlight and brought attention from around the world. Within a week, President Obama was touching down in Oklahoma to survey the damage, meet with officials and reassure local residents.

To move forward and rebuild, it was crucial for the community to pull together and focus on the future.

For John Banks and Tom Thompson, two public finance bankers at the Norman, Okla., branch of D.A. Davidson & Co., the disaster brought additional challenges: they had been originally charged with developing a $72 million bond package for the Moore School District to fund the construction of two new elementary schools (Southlake Elementary and Timber Creek Elementary) and a junior high school (Southridge Junior High School), along with improvements to other facilities for a school district that was posting sizeable enrollment growth.

But in the aftermath of the disaster, the fate of that plan was suddenly in jeopardy.

The voters had approved that bond proposition overwhelmingly just three months before, and the finance team and district officials had pushed to prepare the bond issue for sale to the public—which was slated for May 21. The May 20 tornado threw that process into a tailspin, as a post-storm damage assessment would be needed before the sale could proceed.

Here’s why: local property tax revenues were expected to be the primary source of repayment for the bond debt, and with a multi-billion dollar damage assessment to homes and other properties around the county, it was up to local officials and the finance team to certify that the tax base had not been impaired.

“Here you had a major tornado going through that rips up your tax base,” Banks explained in a recent interview with SIFMA looking back on the 2013 disaster. “We were scheduled to price these bonds a day after the tornado hit. Needless to say, we cancelled that sale and literally waited for the dust to settle, which allowed people to go out and survey, and measure the extent of the damages to the property tax base.”

Which, in the aftermath of a historically destructive tornado, was not going to be an easy undertaking.

“All of a sudden you’re trying to gather up information which may not be available because of the destruction of the storm, and so you’ve got to get out there and get boots on the ground and reassess that situation,” Banks said. “It’s just a lot of grunt work you’ve got to do. We had a pristine package that was ready to go to market, the storm destroyed it, but then we had to go back and resubmit that package to reflect post-storm data.”

The D.A. Davidson team—working with the legal counsel of Floyd Law Firm; the financial advisor Steven H. McDonald & Associates; and the Cleveland County Educational Facilities Authority working in conjunction with the District’s administration and financial advisor, BOSC—rolled up their sleeves and went to work. They assessed the possible damage to the tax base and collected new valuation and enrollment data to prepare an updated rating request. The goal was to prove that the bond issue was still viable, in spite of the devastating losses that had struck the county.

But the news that came back surprised everyone—the post-storm assessment revealed that the property tax base had actually grown relative to earlier assessments, owing to the fact that the tornado damage was mostly limited to a rural area with more low-income housing and rental stock.

The tornado destroyed three school buildings (Plaza Towers Elementary, Briarwood Elementary, East Junior High School) and the district administration building, which would be rebuilt with insurance funding. Meanwhile, although the funding for the new capital improvement projects would face an unexpected delay, a total of $66 million in lease revenue bonds went on sale on August 29—just a little more than three months after the tornado.

Investors responded with enthusiasm, with demand for the offering helping to drive down the interest rate on the Bonds. By September 5, the proceeds of the sale were delivered to the district, allowing the new construction to move forward.

It was an effort that wouldn’t have been possible without the close coordination of the finance team, county officials, ratings agencies and others who were committed to getting the community back on its feet in short order.

“This was a huge joint effort to get this district rebuilt in a fairly short period of time,” Banks said. “In terms of our financing team, we are the underwriters – we sell the bonds and we deliver the proceeds. But certainly we don’t act alone. We’ve got to have financial advisors, bond lawyers—it took that kind of financial team effort to get this thing done.”

In addition to the work related to the bond issue, D.A. Davidson staff also volunteered on site with residents for debris removal and provided donations to various community organizations that were providing storm related food and temporary housing services.

In a May 2013 interview after the tornado, Oklahoma Gov. Mary Fallin invoked what she described as “the Oklahoma Standard” to explain the community’s response: “We jump in and do what needs to be done and do it quickly and keep in mind that people need our help. And then we do everything we can to make it happen.”

Just two years later, many in Moore still struggle with what was lost in the tornado. But the community has turned a corner in many respects, with much of the property damage having been cleared, repaired and rebuilt.

The efforts of the D.A. Davidson-led finance team is just one story of how that happened. It’s a prime example of that “Oklahoma Standard” in action, and of how municipal bonds make investing in the future of American communities a winning proposition.