The Facts About Katy ISD's Bonded Debt
According to the District's August 31, 2020 Comprehensive Annual Financial Report, Katy ISD's outstanding bonded debt is $1.889 billion. While there is no argument that this is a large number, to truly have an understanding of what this means for the District and taxpayers, it is important to put the District's debt situation into perspective.
Katy ISD's debt is a direct result of student enrollment growth.
Student enrollment has grown from approximately 32,400 in 1999-2000 to more than 83,423 (Reported in October 2019 to PEIMS), a 157 percent increase in students. During this same time period, the District opened 24 elementary schools, nine junior high schools, and five 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.
Does Katy ISD's debt divert money from "classroom instruction"?
No. Texas public school districts are required by law to keep the Maintenance & Operations/General Operating Fund tax dollars used for instruction and their Interest & Sinking/Debt Service tax dollars used for debt repayment in separate funds. They may not be commingled. As such, no funding has been diverted from the classroom to pay for debt.
Are Katy ISD's capital assets (items paid for by selling bonds) worth more than the District's outstanding debt?
Yes. Bonded debt is very similar to a home mortgage. If the value of the item financed (house/school) is greater than the amount of debt outstanding to pay for it, then it is often seen as "good" debt. Conversely, if the value of the item financed is less than the amount of outstanding debt, then it is viewed as being "upside down" and not a good position.
According to the District's latest Comprehensive Annual Financial Report as of August 31, 2020, the value of the District's capital assets was $2.2 billion. This means that the items financed with bonded debt are worth more than what the District owes.
Has Katy ISD's Debt Service tax rate increased in recent years?
The District's Interest & Sinking/Debt Service tax rate was held steady at $0.40 from 2007-08 through 2014-15, and dropped to $0.39 in 2015-16. In 2017-18 the tax rate was lowered by $0.02 under Section 26.08(a) of the Texas Property Tax Code (in the District’s case related to hurricane/flood declared disasters). The Maintenance & Operations/General Fund tax rate was raised by $0.02 and a transfer from Maintenance & Operations fund balance to the Debt Service Fund was budgeted to hold the Debt Service Fund harmless for the tax rate reduction. In 2019-20 the Interest & Sinking/Debt Service tax rate was returned to $0.39 and remains at that rate in 2020-21. During this same time period, from 2007-08 to 2020-21 the District Maintenance & Operations/General Fund tax rate was reduced from $1.1266 to $0.9988, a reduction of $0.1278.
Also during this time period, the District authorized and sold $459 million of bonds from the 2010 authorization, $748 million of bonds from the 2014 authorization, and as of August 31, 2020 has sold $569.2 million of the $609.2 million authorization approved in November 2017. This ability to maintain and even slightly decrease the original tax rate was primarily due to an increase in taxable values through growth and the District's ability to capitalize on low interest rates both in issuing new bonds and by refunding certain outstanding bonds.
How is Katy ISD's debt approved by the community?
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.
Is Katy ISD in a good position to sell bonds at a favorable rate?
Yes. It is anticipated that Katy ISD's bonds will receive the highest possible credit rating due primarily to the guarantee by the Texas Permanent School Fund. Because of the high credit rating and the current interest rate environment, the District expects a favorable market for its bonds. Katy ISD's bond ratings put Katy in the top tier of Texas' most creditworthy school districts because of its management of bonded debt. This includes selling bonds when interest rates are favorable, refunding existing bonds to take advantage of lower interest rates, and maintaining a healthy fund balance in the Interest & Sinking/Debt Service Fund.
For each of the 18 years that Texas districts have been rated through the Financial Integrity Rating System of Texas (FIRST), Katy ISD has received a Superior Rating. The District has also received the Texas Comptroller Leadership Circle Award for Financial Transparency for four years, receiving the gold award for three years and the platinum award in 2015, the first year the award became available. In 2017, the District was awarded a star in the area of Traditional Finances through the Texas Comptroller's Transparency Stars program, and in 2019 the District was awarded the Debt Obligations Star through the same program.
page updated 2/10/21