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Bonds and How they Work What
are bonds? How long does it take to pay them off?
Bonds for school projects are very similar to a mortgage on a home. To finance
construction projects, the district sells bonds to investors who will be paid
principal and interest. Current projections show these bonds to be paid off in
approximately 25 years. The district sells bonds that mature at different times,
so bonds for items with a shorter life-span (such as computers) are paid off
before the purchase becomes obsolete.
How do bonds work?
The sale of bonds begins with an election to authorize a specific amount -- the
maximum the district is allowed to sell without another election. The school
district sells municipal tax-free bonds when funds are needed for capital
projects – usually once or twice a year. Bids are taken from interested buyers,
usually large institutional investors – and are sold at the lowest interest rate
offered. The rate is based on the district’s bond rating – the higher the bond
rating, the lower the interest rate to sell the bonds. Principal and interest on
the bonds are repaid over an extended period of time with funds from the debt
service tax rate.
If these bonds are approved, is the district obligated to spend the money?
No. Voter approval is an authorization for the district to issue bonds. They
will be sold in the future when funds are needed.
Why are bonds used to finance non-facility items?
The district is allowed to pay for capital expenditures such as technology,
buses, land and portable buildings with bond money rather than out of the
general operating fund. The cost of the purchases are spread over the life of
the asset (a period of several years) rather than coming from a single year’s
general fund.
How were the contents of this bond package determined?
The proposed bond package was developed by a 97-member community task force
representing all areas of the district. The bond planning committee was charged
with reviewing and evaluating data including demographic studies, the Long-Range
Facilities Plan, financial projections and other information, and presenting a
recommended bond package to the Board of Trustees.
What if we need more schools and maintenance before these bonds are paid off?
This bond package will fund capital projects until approximately 2009, after
which another authorization will be needed to sell additional bonds in the
future. At the same time, however, the tax base is projected to increase and the
district will continue to pay down debt, providing additional capacity for
future bond sales.
What about the TIRZ and the Merrell Center?
Funding for the Merrell Center came from a Tax increment Reinvestment Zone (TIRZ),
developed in partnership with the City of Katy and the Katy Development
Authority and, as a result, no taxpayer
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Did you know ...
This bond package will fund capital projects through 2009.
Recent bond rating upgrades from Moody’s and Standard & Poor’s put Katy in the
top tier of Texas’ most credit-worthy school districts.
46.5% of this bond package will provide additions/improvements for students and
staff at existing facilities. 44.5% will fund new schools to meet projected
growth through approximately 2009, with 9% for other items.
Using bond funds for long-term capital needs allows the district to spread the
cost of capital expenditures over 20-30 years — just as a homeowner finances the
purchase of a house.
The district sells bonds that mature at different times, so bonds for items with
a shorter lifespan (such as computers) are paid off before the purchase becomes
obsolete.
Without bond funds, the district will be required to pay for capital items from
the general fund, which pays for salaries, instructional programs and other
operating costs.
Between the reduction of debt through annual payments on bonds and increases in
taxable values, the district has the capacity to sell new bonds without raising
the debt service tax rate beyond $.40. |
