Can Katy ISD issue a hotel tax like Harris County Sports Authority to help pay for school facilities?
Explain tax rate vs. tax increase due to the increase of property value – especially new families.
The amount of taxes levied by Katy ISD are calculated by multiplying the tax rate set by the District by the taxable value of the property within the District. The taxable values are set by the county appraisal districts. Property values will increase as new businesses move in and new homes are built for incoming families. These increased values will generate more tax revenue, even if the tax rate remains unchanged.
Can bond surplus be mandated to debt service instead of additional work?
The District could use surplus bond proceeds after projects are completed to pay off debt to the extent debt payments are due (callable) at that time. Once the savings go into the debt service fund they cannot be transferred out – this is an irrevocable decision.
In light of future construction and the cap on school districts’ total tax rate, will the taxable base fund projects /M & O costs maintain Katy ISD’s quality education?
Several estimates are used to project the future tax rates necessary to maintain our quality of education. The taxable values are estimated to increase each year in these projections, as are student enrollments, interest rates, etc. Each year as the Maintenance and Operations budget is prepared, anticipated needs and resources are evaluated to adequately fund educational needs. Also, as projects begin that are funded with bond proceeds, growth and renovation related needs are assessed to determine the optimum bond sale. This is the amount to adequately fund the construction without incurring interest expense prior to anticipated cash needs. The legislated total debt service tax rate cap of $0.50 and Katy ISD’s current property value projection are more than sufficient to support existing debt at this time.
How does multi-family growth impact taxes?
Multi-family apartment complexes impact tax collections and other revenues in several ways. The value of the facility itself will generate local tax revenue, and the students within the multi-family facility will generate state funding. The property tax generated per student may be more or less than that generated by a single family residential home dependent upon the value of the multi-family facility and the number of students housed within the facility.
What percentage of tax revenue does and will commercial/industrial space provide in 5 and 10 years? Assume occupancy rates stay stable.
(Source TEA Academic Indicator System as of PEIMS snapshot date October 2013)
Per the chart above, business related values make up approximately 25.7% of total taxable values for Katy ISD. The percentage of tax revenue this category will provide in 5 to 10 years will depend on values assessed by the appraisal districts, the area economy, etc.
If the District over estimates future costs and there are funds leftover from the bond, where does the extra money go?
Funds available from project savings have historically been repurposed for other bond order authorized spending. For example, project savings occurred with the 2010 Bond Authorization primarily as a result of favorable pricing during construction.
Project savings from various approved projects that came in under budget created the capacity to engage in other capital projects not originally in the 2010 Bond. New projects that were funded entirely from project savings include the following:
Keiko Davidson Elementary
James Randolph Elementary
Initial Design Fees - Stadium #2
Initial Design Fees - Agricultural Sciences Center
Mayde Creek Water Well
South Transportation Driveway
Katy High Parking Lot
Memorial Parkway Elementary Parking Lot
Copier/Printer Lifecycle Retrofits
IP Phone Replacement
Secondary Wi-Fi Initiative
What is the expenditure per student in Katy ISD vs. top performing schools in Texas?
Expenditures per student can be defined in several ways. The following chart utilizes operating expenditures per student, which do not include capital outlay and intergovernmental charges, allowing better comparison across districts:
With new businesses coming, what is Katy ISD’s debt and expenditure per student vs. top U.S. schools?
We do not have data pertaining to the U.S. as a comparison group.
What is a “general obligation debt?”
The specific definition from the Municipal Securities Rulemaking Board (MSRB) is: GENERAL OBLIGATION BOND OR GO BOND Typically refers to a bond issued by a state or local government that is payable from general funds of the issuer, although the precise source and priority of payment for general obligation bonds may vary considerably from issuer to issuer depending on applicable state or local law. Most general obligation bonds are said to entail the full faith and credit (and in many cases the taxing power) of the issuer, depending on applicable state or local law. General obligation bonds issued by local units of government often are payable from (and in some cases solely from) the issuer’s ad valorem taxes, while general obligation bonds issued by states often are payable from appropriations made by the state legislature.
How much revenue from taxes will Katy ISD receive from new businesses?
While the amount from new businesses alone is not available, an estimate of the increase in business related taxes based on increased values of Real, Commercial and Industrial property from 2013 to 2014 would be $9,200,000.
Is a strong credit rating combined with Texas guarantee important facts to consider for obtaining a bond?
Strong credit ratings are important with regard to selling our bonds in a marketplace where they compete for investor dollars. Strong credit ratings help the District because bonds we issue are more attractive to investors who value a secure investment.
With new businesses coming into the District, have we taken into account the tax revenue dollars we will receive?
Yes, an assumption has been made that taxable property values will increase year over year.
Is it legal to establish a reserve account (i.e. “rainy day” fund) for excess operating funds (i.e. stadium scoreboard revenues) to pay off bonds early?
Is there a recommended target percentage for a reserve account balance or rule of thumb metric?
Rating agencies generally expect for a district rated in the Aa2/AA category to have an unreserved, undesignated fund balance of at least 90 days of expenses. Thirty days or less would be considered a “worst practice” by the rating agencies. Texas Education Agency (TEA) recommends that districts have at least 75 days of cash in reserves.
Should Katy ISD refinance existing debt at a lower rate?
Yes, we do this routinely as the market provides lower rates and as bonds are eligible to be called. This is an ongoing process.
What are the qualifications to receive the state guarantee?
The Texas Education Agency (TEA) reviews each application according to state statutes and State Board of Education Rules (SBOE), which includes the following:
Review the application for completeness
Ensure that the district is financially sound (includes review of reserves)
Review of Financial Integrity Rating System score
Review of annual financial audit report
Review of district’s accreditation
Review of any complaints
Must be lower than the 90th percentile of all Texas ISDs in annual debt per Average Daily Attendance (ADA) or total debt per ADA. In 2013/14, all Texas ISDs were deemed eligible by TEA. However, this is an annual calculation.
What is the District’s financial advisor’s (RBC Capital Markets) cut of the District bond?
The financial advisor is not compensated by the District until there is a successful bond closing. The typical agreement does not require any upfront or ongoing fee until if and when a successful closing has occurred. If the District did not sell any bonds for the next 12 months, the financial advisor would receive no compensation. When a bond sale is completed, the firm fees are approximately $0.40 per bond or about $40,000 per $100 million (illustrative purposes only, actual depending on type of sale and other factors).
How do Katy residents buy bonds first (RBC PowerPoint) ?
In most cases, there usually will be more orders to purchase bonds than bonds available for sale. In this case, a priority system is needed to determine which type of bondholder will be filled first. Katy ISD has historically given preference to its retail taxpayers, meaning that if an order is submitted in the amount of $5,000 to $250,000 from a Katy ISD resident, then this order type would be filled first.
What was the percent change in tax base for residential vs. commercial/industry over the past 3 years? What is the forecast?
The percentage change for Real Residential, Single-Family from 2012 to 2014 is 15.32%. The percentage change for Real, Commercial and Industrial from 2012 to 2014 is 22.85%. Forecasts are dependent on future assessed values from county appraisal districts – Harris, Fort Bend and Waller.
What is the value of tax abatements and/or PILOT agreements with new industry/commercial projects?
After a lengthy application process with the Comptroller, the District has one Chapter 313 agreement with a manufacturing company, in which Katy ISD will collect full taxes for the first two years. In the third year the manufacturing company is expected to give Katy ISD a PILOT (Payment in Lieu of Taxes).
Will the tax rate go up since the bond passed?
What is the cost of bonds relative to other financing options?
The issuance of Voted Bonds represents the lowest cost alternative for Texas school districts. However, State law does allow school districts to sell other types of debt beyond Voted Bonds. The most prevalent alternatives to Voted Bonds are Maintenance Tax Notes & Lease Revenue Bonds through a Public Facilities Corporation (PFC).
Maintenance Tax Notes (MTN) can be sold only for renovation and infrastructure projects only. No new construction can be completed with MTN proceeds. Payments can be no greater than 20 years and must come from the Maintenance & Operations (M&O) budget, instead of the I&S (debt service) budget. Note, the M&O budget is constrained with school operational cost and has limited capacity for debt payments.
Lease Revenue Debt from a Public Facilities Corporation (PFC). State law allows for districts to form a separate governmental entity, PFC, and the PFC would issue revenue bonds secured by lease payments from the school district. Proceeds from the PFC sales can be used for new construction and renovation, but the school district must make payments from its M&O budget, which is limited in capacity.
What Katy ISD’s total bond indebtedness by:
Date of each bond
Amount of each bond
Interest rate of each bond
Payment amount and terms of payment of each bond. Example monthly, quarterly, semi-annual, or annually
Balance of each bond
Date of payoff of each bond
Total due at this time on bonds
Most bond payments are made on August 15th and February 15th (semi-annually) each year until maturity.
What is the total dollar value the bond proposal could reach without increasing the tax rate?
Until the projects to be included in the proposal are determined, this value is unknown. In addition, several variables must be estimated once the projects are determined. The District strives to ensure that estimates of variables are realistic and conservative. The major variables include:
Taxable Assessed Value (TAV) – The District’s current taxable assessed value is approximately $24.2 billion and continues to grow. In order to project future tax rates, the District must estimate anticipated growth in TAV. Current assumptions include a $1.5 billion increase in TAV for 2014-15 and a $1 billion TAV increase per year after that through 2023. TAVs are held constant for years 2024 and beyond.
Interest Rates – The District has benefitted from the low interest rate environment in recent years and has been able to issue bonds at very low rates. However, interest rates that affect municipal bonds are projected to begin to rise. Current estimates would be that the District could issue bonds at a rate of 5% in 2015, 5.5% in 2016, and 6% in 2017 and 2018.
Useful Lives of Assets Financed – The District structures the bond repayment schedule to match the useful lives of assets being financed. Assets with shorter lives, for example technology with a six year useful life, will have equivalent principal payments in the first six years of the bond repayment schedule. This compressed repayment schedule puts added pressure on the tax rate. Assets with longer lives, for example a new campus facility with a fifty year useful life, will have principal payments spread over the thirty year life of the bonds. Actual lives will be determined by the projects included in the authorization.
Cash Flows – Once specific projects are identified, the District will be able to prepare a cash flow indicating when cash will be needed to fund each project. At that time bond sales will be structured to provide cash annually to cover cash needs.
Fund Balance – The District can decide to utilize the debt service fund balance to manage the debt service tax rate.
Interest Earnings – The District invests its construction funds and debt service funds. Interest earned on these funds is deposited into the debt service fund to help manage the tax rate.
How do bond sales effect tax rates and what happens if interest rates rise in the future?
Bond sales are structured to cover cash needs for a twelve month period and to repay principal at a rate to match the useful lives of the assets included in the sale. The larger the cash need, the larger the sale and the interest expense incurred. Likewise, if interest rates rise, interest expense will also increase. Either of these will increase pressure on the tax rate. Current projections incorporate interest rates increasing.
What year on the debt rate chart does the rate drop below $ 0.40?
The rate drops below $.40 in the following chart in 2015/16. This was structured in this manner intentionally to provide capacity for future growth (see red highlighted capacity created in 2015/16). The District’s intention is to aggressively strive to maintain a $.40 debt service rate and accelerate debt payoff when possible.
What is the debt load and expenditure per student for Katy ISD vs. top and bottom performing schools? (TX and US)
What is the actual growth in taxes/household?
Since the tax rate has remained stable since 2007-08, actual growth or increase in a household’s school taxes would have resulted from increased property values. Property values are not determined by the school district, but are determined by the county appraisal districts in which the property is located. Katy ISD is located in Waller, Fort Bend and Harris counties.
What is the District’s current total outstanding debt?
As of August 31, 2014, the District’s outstanding principal is $1,192,692,484 and estimated associated interest is $750,826,006. *Does not include estimated refunding’s (to lower interest expense) or calls (to lower principal amounts) currently under review.
Does “Robin Hood” still impact us?
Although Katy ISD is not physically sending a check to Austin (a simplistic view of “Robin Hood”), we are receiving less state funding. As local district property values increase, the amount of funding received from the state decreases.
How often are bonds sold?
The District sells bonds dependent upon cash needs approximately once per fiscal year. Therefore, bonds would probably be sold annually in increments required to cover cash flow needs anticipated over the next 12 month period. The complete authorization would be issued in approximately 3-4 years depending on the number of projects and size of the authorization.