Texas school districts face tough decisions as bond program reaches limit

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A state-backed program that for many years has helped school districts get the lowest interest rates possible on bonds and hold their credit score scores excessive has reached its debt limit — and it may value taxpayers thousands and thousands of {dollars}.

Texas’ Permanent School Fund guarantees lenders who purchase bonds from a school district that the state can pay them again if the district can’t. But it could solely vouch for a lot debt.

The IRS, which has jurisdiction over tax-exempt municipal bonds, has set that limit at about $117 billion — and it was reached in December. Since then, no less than 49 school and constitution districts that requested the PSF to again their debt have been denied as a result of inadequate capability, leading to greater than $6.87 billion in unguaranteed bonds.

PSF’s communications director, Carolyn Perez, mentioned the bond assure program will function at very restricted capability for now, although it’d have the ability to tackle extra bonds as different faculties already within the program repay their money owed.

The program beforehand reached its debt limit in 2009 as the state’s rising inhabitants and scholar enrollment led faculties to situation extra bonds for renewing decades-old buildings and erecting new ones. The IRS up to date the program’s debt limit later that yr, however not earlier than school districts have been compelled to pay larger rates of interest on their bond debt for a few months.

Bond packages even have gotten greater and costlier during the last decade as building prices hold going up and district leaders want to get a number of tasks handed in a single bundle so as to not have to return and ask taxpayers for more cash.

Perez mentioned the Texas Education Agency and PSF have been working with members of Congress to extend the debt limit both by way of laws or by way of an IRS motion.

U.S. Reps. Lloyd Doggett, D-Austin, and Jodey C. Arrington, R-Lubbock, filed House Resolution 32, which might eradicate a limit on the bond program.

“Without a corrective course, we’re currently barreling toward sinking hundreds of millions of education dollars into needlessly high financing costs,” Doggett mentioned.

But whereas Congress determines the destiny of the invoice, Texas school officers should determine whether or not to delay their bonds or proceed their tasks at larger rates of interest — probably having to boost property taxes.

In the Austin Independent School District, voters authorised a $2.44 billion bond package final yr to replace infrastructure throughout a number of campuses. The district was denied from the PSF’s assure program in November however offered about $600 million of its bond debt in January anyway as a result of building prices proceed to go up and the district couldn’t afford to delay its tasks, Chief Financial Officer Ed Ramos mentioned.

Ramos estimates the district can pay a further $20 million in curiosity that might’ve been prevented by way of the PSF’s program.

In Seguin ISD, voters authorised a $131 million bond undertaking final yr. The district couldn’t get $40 million value of bonds assured by way of the PSF, Superintendent Matthew Gutierrez mentioned.

Seguin ISD had promised taxpayers that the bond bundle would elevate the property tax fee by solely 2 cents. Now district leaders need to determine whether or not to promote their bonds in March with out the PSF’s bond assure — and probably elevate the tax fee even larger — or wait to see if the limit is raised once more, on the danger of building prices going up.

The district may additionally cancel some tasks to maintain the tax fee as promised.

“We’re hoping that something will happen here very soon so that we aren’t impacted,” he mentioned. “It would be really unfortunate to have to think about scaling down the scope of the projects.”