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Katy Independent School District

Finance

Bond Now or Later?

What happens if the bond is delayed and is not passed this November?
The District would be subject to upward inflationary pressure, interest rate risks, and a majority of campuses will be exposed to Districtwide rezoning that could result in overcrowding.   However, rezoning the District now would not eliminate the existing and future growth, nor the overcrowding many of our schools are experiencing.  The District is only 79% built out. Rezoning the District now would only result in another Districtwide rezoning 3-4 years from now.  This would be followed by an additional Districtwide rezoning three to four years after that.  Demographers project Katy ISD will reach a 100,000 student enrollment in the next seven years.  The majority of future growth and development will occur in the northwest quadrant of the District.  We do not believe it is in the best interest of our students and families to move Districtwide attendance boundaries every three to four years.  It takes away from our neighborhood schools concept and would result in a majority of our schools exceeding maximum design capacity

Katy ISD Tax Base

What is anticipated to happen to the tax base?
The District does have taxable value increases projected in the development of this bond plan.  However, we have attempted to remain conservative, estimating 4% increases for three years and then dropping to 3% increases, 2% and eventually assuming 0% growth beginning in 2027.  In addition, the District can continue to look for opportunities to refinance debt at lower interest rates and also has a healthy fund balance in the debt service fund, currently exceeding $58 million. We anticipate that this bond referendum will have no impact on the tax rate.  

Explain tax rate vs. tax increase due to the increase of property values, 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.

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.

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. Project savings have occurred in past authorizations due primarily to favorable pricing on construction projects. This created the opportunity to utilize these funds to construct projects including additional schools, property purchases, infrastructure, etc.

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.

Is a strong credit rating combined with Texas guarantee important 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. Similar to a personal credit rating, strong credit ratings help the District because bonds we issue are more attractive to investors which results in lower borrowing costs. 

With new property growth 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 there a recommended target percentage for a reserve account balance or rule of thumb metric?
Rating agencies generally expect a district to have a Maintenance and Operating 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.

Can 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 was the percent change in tax base for residential vs. commercial/industry over the past 3 years?
The percentage change for Real Residential, Single-Family from 2017 to 2020 is 11.89%. The percentage change for Real, Commercial and Industrial from 2017 to 2020 is 17.83%. Forecasts are dependent on future assessed values from county appraisal districts - Harris, Fort Bend and Waller. 

What Katy ISD's total bond indebtedness as of August 31, 2019?


Issue

Series Description
Interest 
Rate

Matures Debt 
Outstanding
$68,910,0002010-A Unlimited Tax Refunding Bonds2.00-5.002022$8,700,000
41,470,0002010-C Unlimited Tax School Building Bonds4.00-5.0020215,855,000
155,000,0002010-D Unlimited Tax School Building Bonds4.50-5.302041155,000,000
147,680,0002012-A Unlimited Tax School Building & Refunding Bonds4.00-5.002042128,300,000
103,000,0002013 Unlimited Tax School Building Bonds2.00-5.00204381,100,000
133,970,0002014-A Unlimited Tax Refunding Bonds1.00-5.002036
123,780,000
18,150,0002014-B Limited Tax Refunding Bonds3.00-5.00202815,370,000
155,310,0002015-A Unlimited Tax School Building Bonds2.00-5.002045
139,370,000
52,955,0002015-B Unlimited Tax Refunding Bonds4.00-5.002037
52,955,000
115,000,0002015-C Variable Rate Unlimited Tax Refunding Bonds4.47-4.802036
112,500,000
245,095,000
2016-A Unlimited Tax School Building Bonds4.00-5.002046
233,160,000
23,515,0002016-B Unlimited Tax Refunding Bonds3.00-5.002038
23,515,000
11,510,000
2016-C Limited Tax Refunding Bonds5.002024
4,970,000
152,315,0002016-D Unlimited Tax Refunding Bonds3.00-5.002032138,650,000
261,640,0002017 Unlimited Tax School Building Bonds4.00-5.002047250,725,000
186,225,0002018 Unlimited Tax School Building Bonds3.00-5.002048179,200,000
190,695,0002019 Unlimited Tax School Building Bonds4.00-5.002049190,695,000
Total Bonded Debt1,843,845,000


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 $41.8 billion and continues to grow. In order to project future tax rates, the District must estimate anticipated growth in TAV. Current assumptions include a 4% increase in TAV for 2020-21, 2021-22 and 2022-23 school years. A 3% for TAV increase for the 2023-24 and 2024-25 school year and a 2% increase for 2025-26.  TAVs are held constant for years 2027 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. In fact, interest rates that affect municipal bonds are currently at an all-time low.  Current estimates would be that the District could issue bonds at a rate of 3.25% in 2020. The District is modeling current interest rates plus 100 basis points over the next four years.

  • 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 five-year useful life, will have equivalent principal payments in the first five 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 30-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 made to provide cash annually based on identified needs. 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.

  • 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 is the actual growth in taxes/household?
The tax rate remained stable from 2007-08 to 2014-15. In 2015-16 the District was able to lower the tax rate by $0.01 (1 cent). The  District was able to lower the tax rate another $0.073 (7.3 cents). It is expected that the total tax rate will decline again in 2020-21. 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, 2019, the District's outstanding principal is $1,843,845,000 and estimated associated interest is $1,177,688,201. *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.


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