The Demographics of Demand

Many Texas districts are seeing the need to close or repurpose schools – especially as budgets get tighter. These facilities, particularly in mature districts, are often either:

• Underutilized;
• Under-performing;
• Too small to provide programs cost-effectively; or
• Too old to be renovated properly.

A 2005 survey undertaken by the Bush School at Texas A&M University showed that 15% of all Texas schools had already exceeded their life expectancies of 50 years (CEFPI Winter Bulletin (Jan., 2012) – representing 1,476 general purpose school buildings. This is a conservative estimate, in that a school’s age in this study could be based on the date of the last major renovation – suggesting that the percent of needed replacements may actually be much higher.

However, this data is deceiving, in that many of these older schools are in locations where the student population is quite low and will not be returning. Therefore, a sizeable subset of these schools are in need of closure, instead of major renovation or replacement. In many urban centers, student population is declining for various reasons: (1) land use surrounding these older schools has become heavily industrial or commercial, leaving an attendance zone that has little residential land use remaining; and (2) a large proportion of young families have preferred relocation to suburban locations and out of mature urban cores. Other young families are moving from smaller cities and small metro areas, particularly in Texas’ high plains school districts, to become new pioneers in the State’s largest metropolitan suburbs, leaving schools in many West Texas and East Texas school districts without sufficient student populations.

During the last year of the “Boom Era” — 2007 — 82% of the 233 total Texas bond elections had passed. This past year (in the May and November bond elections of 2011), there were 79 elections for a total of over $3.95 billion…hardly comparable to the over $14.6 billion in 2007 – before the economic downturn.

Of the five biggest bond elections in Texas during this past November, PASA prepared the student projections for three – Mansfield I.S.D., Lake Travis I.S.D. and Lamar C.I.S.D. PASA placed a strong emphasis on the difference between current capacities and future enrollment. With successful bond referendums, these districts have the ability to open new facilities in key high-growth locations and to replace their oldest schools.

The Eagle Ford Shale exists across a wide swath of Central and South Texas.  Its easternmost reach is in Leon County and it extends all the way west to the Texas-Mexico border in Webb and Maverick Counties.  As of now, the majority of the activity has been in the western sections of the play, starting in Gonzales and Lavaca Counties and moving westward to the border with Mexico.

The area is sparsely populated, with many ranches and few towns.  However, changes are already being seen in small towns such as Tilden, Cotulla, and Three Rivers.  Landowners are collecting on leases that range from $200 to $8,000 an acre.  That money will be spent on ranch and land improvements, and will make its way into the local tax offices, which in turn will lead to school and hospital improvements and other new localized infrastructure.

There are questions as to whether or not the area will see the same boom as was produced by the Barnett Shale in the Fort Worth area.  However, South Texas does not have the same existing large-city infrastructure, and the population is much more dispersed than is the Fort Worth region.

The Eagle Ford‘s potential economic boom is more closely akin to decades earlier growth in the Permian Basin.  Major cities — Midland and Odessa — in the were the epicenters of this earlier economic and population growth.  By the early 1950’s, Midland had 215 oil companies and was fast becoming the economic center of this diverse oil-bearing region.  In mid-1949, for example, there were 3,686 students enrolled in Midland I.S.D., but there were 14,647 enrolled by the Fall of 1959 – a three-fold increase in 10 years.

So, by 1959, Midland I.S.D. had gained 12 new elementary schools built, 3 new junior high schools, 1 junior/senior high, and additions to 14 other school buildings.  Between 1960 and 1970, the oil industry slumped – due to foreign oilfields – and students showed a small decline in Midland.  But, between 1980 and 1983, the overall Midland population increased by roughly 30% — in 3 years…with lower, but still significant, increases in students.  This roller-coaster ride of growth and decline is common in oil-dependent regions.

Back to the Future:  according to Texas Railroad Commissioner David Porter, “The Eagle Ford Shale has the potential to be the single most significant economic development in our state’s history.”¹ There are currently 13,000 full-time jobs – summing to over $500 million in salaries.  A U.T. San Antonio study projects that number to increase to 70,000 workers by 2020.

Oil field services companies such as Halliburton Co., Petrohawk Energy Corp. and Frac Tech Services are hiring workers currently in small towns throughout the play.  Tilden, Cuero, Alice, Laredo, Pleasanton and Caldwell are all seeing an increase in skilled worker positions that have been a rarity in the past.

Currently there is a shortage of housing for workers moving into the area. Investors such as Remote Logistics International are just starting to build in the area.  Restaurants and convenience stores are booming in the area, and as the play continues to develop, there will be need of more retail, restaurants and other amenities if those workers are going to be enticed to stay in the area.

As the closest large city to the Eagle Ford Shale, San Antonio is also expected to have positive growth as a result of the drilling to the south.  According to The Houston Chronicle, San Antonio is “poised to become a mini-hub for energy”² since companies will need to open offices to supervise their drilling efforts in South Texas.  In fact, Keith Phillips, senior economist at the San Antonio branch of the Dallas Federal Reserve estimates that the San Antonio could add as many as 4,200 jobs due solely to Eagle Ford Shale drilling.  Sanjel has already become the City of Cibolo’s largest employer.  So, the San Antonio school districts, such as Schertz-Cibolo I.S.D. and others on that southeast side of Bexar county should see significant growth.

It seems inevitable that there will be commercial development, followed by student growth, in the smaller towns and school districts in South Texas.  School districts closest to the epicenter of drilling permits include the smaller districts of Three Rivers I.S.D., Karnes City I.S.D., and Yorktown I.S.D.

Yet, those districts with the largest current student populations may be the highest attractors of additional students – such as United I.S.D. with almost 42,000 students (and now targeted for the liquids-rich nature of the Eagle Ford formation in the northern part of Webb County), and Eagle Pass I.S.D. with almost 15,000 students (where light crude and condensate is produced and also the location of the 106,000 acre Harrison Ranch – the largest single lease in the Shale).

Eagle Shale Ford Drill Sites

The level and extent of that student growth remains to be seen.  What is undeniable is that the Eagle Ford Shale discovery and its development will be an incredible employment, housing, and population boom for the southern, and some central, portions of the State, at a time when it is sorely needed.

All 13 districts shown are experiencing higher growth (or, in the case of San Antonio I.S.D., less decline) than five years ago –

So what happened? Why are these urban districts gaining students after periods of loss?

This year’s growth in the districts below is primarily due to younger families having to rent rather than buy.  And, rental properties (both homes and apartments), tend to be in the urban core.  Rentals are in high demand — with apartments reaching historically high occupancy levels in most urban areas — due to un- and under-employment, and also due to the lack of readily available mortgages.  The on-going economic downturn is having this delayed demographic consequence.

How long will this contra-flow pattern continue for the school-aged students?  The simple, but not-very-time-predictive answer is: “Until the housing market turns around.”   To explain this further:  a turnaround will occur (1) when unemployment rates become significantly lower and (2) when the foreclosures are over.  Now most home loans require 20% down via private lenders (exceptions exist, like VA loans).  But, at the end of 2010, 46% of all current mortgagors had less than 20% equity in their homes, pointing to the potential for more future failures.   And, home mortgage underwriting standards continue to rise.

Based on a complex formula of new households being created, housing units being demolished or used for other purposes, and the estimated number of inventory now available, it will take until perhaps 2016 for the housing inventory to be a normal working inventory.  And, home prices could fall more in the meantime.  (Refer to Gary Shilling’s INSIGHT and John Mauldin’s “Outside the Box” – both May, 2011 publications.)

Homeownership has fallen below its original level prior to the subprime mortgage availability of 2001-2007.  As ownership slides, and there is continued increase in Texas population, then metro inner areas will see more renters.  Some argue that homeownership has never been a better bargain.  But, incomes were growing in the early 2000s and now household incomes are weak.

During the first quarter of 2011, the nation’s home ownership was about 66.4% — and in 2016, it will likely be 64%.  Even a one percent decline propels significantly more rentals.  Ultimately, this means that districts such as those seen below, will continue to show strong rental trends.  If Texas increases in population at, conservatively, 1% per year, and if Texas loses just 1% of its homeowners over five years (who are forced to become renters), then thedemand for added rental units (both apartments and single-family) will be about 418,750 by 2016*.

* In 2009, there were 9,724,220 housing units in Texas, with approximately 25.2 percent (2,479,676) as rentals. Over the 2011-2016 time frame –based on added population alone — there should be an added demand for 1,250,000 new housing units in Texas, of which 318,750 should be additional rental units. Likewise, if there is even a 1% further slide over the next five years of current owners moving to rental units, then there will be another 100,000 needed rental units, for a sum of 418,750 new rental units required by 2016. [According to the American Community Survey data, homeownership in Texas was 66% in 2009, and was declining at a lower rate than the U.S. as a whole – since the State's ownership had declined less than one percent between its peak and 2009.]

Guidebooks — Released in June, 2011

• Attendance Planning
• Optimum Grade Groupings
• Specialized High Schools

Student Demographics Trends (Based on the October, 2011 PEIMS Data) — Mapped by PASA:

• Austin Region 
• Bryan College Station Region 
• Dallas – Fort Worth Region 
• Houston Region
• Lubbock Region
• Rio Grande Valley Region
• San Antonio Region
• Tyler Region
• Waco/Temple/Killeen Region