Ci#zens’ Bond Commi.ee “Bond 101” - A Lesson on School Finance, Taxes & Bonds November 9, 2017 Dr. Brian Woods & David Rastellini, Deputy Supt for Business & Finance 1
Why do school districts have bond issues? ü To finance the purchase and renova2on of capital assets such as school buildings, large-scale technology and buses. 2
What is a bond issue? ü Authoriza2on by our taxpayers via popular vote to issue interest-bearing promissory notes. 3
Total Tax Rate Per $100 of valuaVon OperaVons (M&O) Debt Service (I&S) $1.0400 $0.3355 Principal and • Raising the interest on M&O rate bonds sold to above $1.04 build and requires voter renovate approval schools and pay for other • I&S rate major capital cannot exceed expenses 50 cents when issuing debt Operating costs such as: teacher salaries, supplies, utilities, transportation, etc. 4
$0.10 $0.15 $0.20 $0.25 $0.30 $0.35 $0.2625 0.2625 0.2625 Historical I&S Tax Rate 0.2625 0.2975 0.3255 0.3355 0.3355 0.3355 0.3355 0.3355 0.3355 $0.3355 0.3355 5
His Historic orical T al Taxab able V le Valu alua# a#on on $60 $50 B $50 $40 Billions $30 $23 B $20 $10 $0 Tax Year 6
Lo Local Pr al Property V perty Values alues • In the last 5 years, property values have increased an average of 8.68% per year (8.14% last year) • Growth was due to new property and reappraisals (50-50) • Residen2al property growth for the last 5 Years (8.2%) • Today, residen2al property is 64.7% of the total tax base versus 67.5% five years ago • Current Taxable Valua2on is $50.4 billion 7
2017 A 2017 Appr ppraisal R aisal Roll ll Commercial 35.3% Residential 64.7% Net Taxable Value = $50.4 Billion 8
Debt Manageme ment Obje jec#ves 1. Manage the I&S Tax Rate Key Factors: • Understand the tax base. 2. Reduce the overall cost of borrowing • Understanding of financial markets, products & economic trends 9
Managing the T Managing the Tax R Rate e • Since 2009 raised tax rate three 2mes: – In 2009 by 3.5 cents – In 2010 by 2.8 cents – In 2011 by 1.0 cent • With Bond 2014, the expected peak I&S tax rate was 45.53 cents. • Today’s I&S tax rate is 33.55 cents, 11.74 cents below projec2ons 10
Ava Available Resourc rces • Increase in the tax base • Tax rate • Fund Balance – Debt Service Fund – General Fund • Technology deployment commitments • I&S Tax rate increases assignments • Reduced debt service requirements 11
Debt Manageme ment Results • The tax rates that will not be reached create tax avoidance on today’s average value of $753 over a five year period (2018-19) – $1,183 on today’s home valued at $300,000 12
Managing the C Managing the Cost o t of B f Borr rrowing wing • Over the last 3 years, debt management strategies have produced over $198 million in interest cost savings and avoidance through: – Refinancing at lower interest rates – Issuing variable rate bonds vs fixed rate – Selling bonds only when needed and not all at once 13
Managing the C Managing the Cost o t of B f Borr rrowing wing Factors that affect the cost of borrowing: – Bond Ra2ngs • “AA+” on our own • “AAA” via Permanent School Fund – Variable Rate Bonds • rates range from – 1.45% to 2.125% – Structure of the Amor2za2on – Federal/state Assistance – Timing 14
Fe Federal/State Assistance • Federal Programs: – Build America Bond subsidies – Sequestra2on • State Assistance: – Provided through Hold Harmless Provision – Expected to decrease over 2me 15
Fi Final Comme mments • Bond issues are an integral part of a capital improvement program. • An effec2ve debt management program is vital to maintaining taxpayer trust and confidence. • We believe we have been able to manage the tax rate and minimize the cost of borrowing. 16
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