Katy ISD uses bonds to pay for major capital expenditures, such as
schools and other facilities. Other public entities such as other school
districts, municipalities, and state agencies finance major projects this way. In
fact, the strategy is the same as a homeowner using a mortgage to finance a house
over a period of time.
Katy ISD's debt is a direct result of student enrollment growth. Student enrollment grew from approximately 30,500 during the 1998-99 school year, to more than 79,910 as of August 31, 2019, a 162 percent increase in students. In addition, the District opened 25 elementary schools, 10 junior high schools, 5 comprehensive high schools, and one alternative high school. Numerous upgrades to District facilities have also been performed over the past 20 years, as well as technology upgrades, the purchase of buses and portable buildings, land acquisition, and other capital project related items. All of these items were made possible by the sale of bonds.
There are many misconceptions and misunderstandings about bonds. The following are some of the most recent circulating in our community:
Financing through bonds is unsustainable because it delays actual payment and forces the problem onto someone ''down the road.''
A common refrain heard about bonds is that it places the burden of repayment on future generations. While it is true that future tax revenues will be used to repay bonds, future generations who are paying those taxes will also be the ones "down the road" who are reaping the benefits of the schools and facilities financed with those bonds.
Also, the length of the bonds is directly related to the lifespan of the asset that is paid for with those bonds. For example, the District will sell 30-year bonds for the construction of a new school because its lifespan will be more than 30 years. However, the District will sell bonds that mature within three to five years for the purchase of technology. Tying the bonds to the life of the asset ensures that future taxpayers will not be paying for something that has already been recycled.
Financing through bonds is fiscally unsound because money spent on interest is not money spent on educating children.
There are two major funds in Katy ISD's budget: Maintenance & Operations/General Operating Fund and the Interest & Sinking/Debt Service Fund. In addition, the District's tax rate of $1.3888 is divided into two parts to provide revenue for each fund. The chart below shows how the tax rate is divided between the two funds and the items that can be paid for out of each fund.
|Maintenance & Operations/General Operating Fund: $0.9988||Interest & Sinking/Debt Service Fund: $0.39|
- Instructional materials
- Other daily operating expenses
- Debt principal and interest payments
As shown in the chart, each fund is used to pay for distinctively separate items. In addition, state law dictates that the two funds cannot be commingled. In other words, money from the Interest & Sinking/Debt Service Fund cannot be used to pay for salaries or instructional materials.
The 2010 bond authorization financed the construction of Davidson, Randolph, Shafer, Wilson and Wolman Elementary Schools, Seven Lakes Junior High School, and Tompkins High School, while the 2014 bond authorization financed the construction of Jenks, Bethke, and Bryant Elementary Schools, Tays Junior High School, Stockdick Junior High School, and Paetow High School. Campuses constructed with funds from the 2017 bond authorization that have opened through August 31, 2019 include Campbell and Leonard Elementaries and Adams Junior High School. In addition, McElwain Elementary School, Junior High #17, and Jordan High School are in various stages of construction and will be completed with funds from this latest authorization. There is no argument that these schools are needed to provide space as the student population continues to grow.
However, if the District had not sold bonds from the 2010, 2014, and 2017 authorizations to finance the construction of these schools, Katy ISD would have needed to use approximately $600 million of the Maintenance & Operations/General Operating Fund to complete the campuses opened through August 31, 2019, and an estimated $240 million for those campuses not yet completed. Taking millions of dollars out of the Maintenance & Operations/General Operating Fund for capital projects would most certainly have a negative impact on educating children and teacher salaries.
By providing an injection of money, bonds bypass the normal budgeting process, which removes inefficiencies and wastefulness.
The selling of bonds, as well as the expenditure of bond funds, is closely scrutinized both at the local and state level. Each time an expenditure is made using bond funds, it must go before the Board of Trustees for approval. For example, a typical school construction project will be taken to the Board several times for approval of various components of the project such as design approval, contractor approval, and air balancing and testing.
In addition, the District cannot sell bonds without the sale first being approved by the Texas Attorney General. Financial institutions, bond rating companies and potential investors closely scrutinize the District's finances when it comes to the District's ability to pay back debt.
The whole bond process is complicated, making it harder for parents and taxpayers to hold the District accountable.
While the details of selling, purchasing and refunding bonds may be technical, the overall concept is quite simple. The District sells bonds to finance the purchase of large capital projects, which otherwise would have to be paid for from the District's Maintenance & Operations/General Operating Fund. Likewise, most homeowners obtain a mortgage to purchase their home, also a large expense, and finance it over time rather than paying for it in one lump sum.
As far as accountability, the District is held accountable by the Texas Attorney General, credit rating agencies, financial institutions and investors. In addition, one hundred percent of Katy ISD's debt was directly approved by voters pursuant to a bond election proposed by the Board of Trustees, who were also elected by taxpayers. School districts in Texas cannot assume bonded debt without direct approval from local taxpayers. This is in contrast to charter schools and state agencies that are not required to receive voter approval of certain debt obligations.
Page update: 02/20/2020