I think schools need to begin looking at their existing resource pools

8/29/2014
Swelling School Districts Find a Costly Way to Grow Within State Debt Limits - The Killeen Daily Herald: Texas
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August 29, 2014
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Swelling School Districts Find a
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Posted: Friday, August 29, 2014 6:00 am
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In 1994, the Leander school district had 7,200 students
and was growing fast. To handle the hundreds of
additional students expected in the coming year, the
Central Texas district embarked on a building binge,
including the construction of its sixth and seventh
elementary schools.
Twenty years later, the district remains one of the most
popular destinations for students in Texas. Enrollment
has more than quintupled to 36,750 and is projected to
top 50,000 by 2023. The district now has 24
elementary schools and, officials say, needs at least
five more.
“We’re growing by 1,000 to 1,200 children every year,
which, if you think about it, is pretty much a middle
school every year, or an elementary school and a half, or
half a high school,” the assistant superintendent for
business and operations, Ellen Skoviera, said.
Handling this growth is not cheap. Leander has $1.7
billion of debt, more than would normally be allowed
under state law. To get around the limit on debt, Leander
and other districts have relied heavily on a controversial
financing tool called capital appreciation bonds. Their
upside: No payments are required for years, even
decades. Their downside: They cost more and may
saddle taxpayers with a massive IOU far into the future.
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“It’s getting the benefits now, but not making any kind of
sacrifice,” state Sen. Juan "Chuy" Hinojosa, D­McAllen, a
critic of the bonds, said. “It is bad public policy to commit
that kind of debt to future generations. It’s speculation.”
The difference between more traditional bonds and
capital appreciation bonds is principally about timing.
With a traditional bond, a local government can borrow
money, then pay off the principal and interest in
installments until the debt is retired. With a capital
appreciation bond, installment payments are not required
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8/29/2014
Swelling School Districts Find a Costly Way to Grow Within State Debt Limits - The Killeen Daily Herald: Texas
for the duration of the bond. The district must, however,
pay the entire principal plus years of compounded
interest when the bond reaches maturity in 30 or 40
years. The avoidance of installment payments comes at
the cost of higher interest, potentially as much as 10
times the amount borrowed compared with a traditional
bond, according to public finance officials.
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“Meryl votes it in today, and then Tom, Dick and Harry
comes in and, boy, are they in for a surprise,”
Comptroller Susan Combs said, explaining her dislike of
the bonds.
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School districts that have used capital appreciation
bonds say they are hamstrung by what is known as the
“50­cent test” — a state law that limits the amount of
property taxes districts can assess to cover debt service
costs to 50 cents per $100 of assessed value. By pushing required payments far into the future, capital
appreciation bonds allow districts at or near the cap to issue more debt without having to increase their tax rates.
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“I think if the 50­cent limit wasn’t there, we could have found some alternative routes,” said Michele Trongaard,
chief financial officer of the Wylie school district, which issued $79.4 million in CAB debt in the 2013 fiscal year,
more than any other Texas school district that year, according to state records. The North Texas district’s tax rate
is $1.64, with 47 cents tied to debt service, very near the state cap.
Public entities in Texas have used the bonds for decades, often to refinance existing debt and avoid abrupt spikes
in the tax rate. But in recent years, critics have raised concerns as some fast­growing school districts have used
the bonds to sidestep the 50­cent test and sharply increase their overall debt.
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“We do have a small number of districts where CABs have become a large portion of their debt portfolio, and that’s
pretty much because of the 50­cent debt test,” said Michelle Smith, executive director of the Fast Growth School
Coalition.
Leander has issued more debt through capital appreciation bonds than any other Texas school district in the last
decade. It’s also become the most vocal defender of CABs as prudent fiscal policy for fast­growth districts, though
that role has come a bit reluctantly.
“We don’t want to be known as the district with debt,” Skoviera said. “We’ve always been known for our academic
excellence, and that’s why people come here.”
254­634­2950
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Search The district began using the bonds more aggressively in the 1990s, when enrollment began to soar, fueled by
Leander’s proximity to Austin and its abundance of land available for development.
Because of the rising enrollment, Leander is using 39 temporary classrooms, also known as portables. Without the
capital appreciation bonds as a financing tool, the number of portables would be much higher, Skoviera said.
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“What CABs do is they give you an ability to direct when your payments are made so you can control your tax rate
and ensure you can build within 50 cents,” Skoviera said. Last year, Fitch Ratings downgraded the school district’s
credit rating to AA­, in part because of its heavy use of capital appreciation bonds, though it still classified the
district as a low credit risk. Fitch chose to maintain that rating in May, and noted that it considered the district’s
debt level “very high” and that “capital needs remain significant” given the district’s fast growth.
Some of Leander’s CAB­related debt does not require a payment for nearly 30 years, but the district plans to pay
off much of it well before those bonds mature, Skoviera said. While the district will ultimately pay more than if it had
used more traditional bonds, it will not pay interest anywhere near 10 times the amount borrowed, as some critics
have claimed. In a worst­case scenario, she said, the district would end up paying $3.7 billion to pay off its $1.7
billion in debt.
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“Yes, it costs more, but when you’re at 50 cents and another 1,200 children come in, we think, ‘Where are we
going to put them?’” Skoviera said.
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Swelling School Districts Find a Costly Way to Grow Within State Debt Limits - The Killeen Daily Herald: Texas
In California, Gov. Jerry Brown signed a bill last year capping the total interest costs on capital appreciation bonds
issued by school districts to four times the amount borrowed. The law also limits bond maturities to 25 years.
Homeless man found dead in Copperas
A bill to rein in the use of the bonds in Texas passed the Senate last year, but failed in the House. Hinojosa, the
bill’s Senate author, said he would bring up the issue again next year, but also wanted to tweak the 50­cent test to
make it easier for fast­growing districts to address their needs.
Car rolls into glass doors at Copperas
“We need to look and research other ways to provide them with public financing tools so they can build capacity
and handle the growth in population,” Hinojosa said. “But certainly CABs are not the answer.”
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James Quintero, director of the Center for Local Governance at the Texas Public Policy Foundation in Austin, said
his organization and other conservative groups would work in the next legislative session to restrict the use of
capital appreciation bonds. Fast­growing school districts, like all others in the state, need to live within their means,
he said.
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“I think schools need to begin looking at their existing resource pools before going to outside sources, especially
when they’re tapped out of issuing debt already,” Quintero said. Asked about whether lawmakers should provide
any flexibility on the “50­cent test,” he said “I’ll leave that to the Legislature.”
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In the meantime, Leander and other school districts will consider issuing more capital appreciation bonds.
kids, gets probation
‘Anything Goes’ for Florida Georgia
The Eagle Mountain­Saginaw school district in Tarrant County is already taxing property for debt service costs at
50 cents per $100 of assessed value, the most allowed under state law. Though the district’s property tax revenue
has increased recently, it has not kept up with the rising number of students, said James Schiele, the district’s chief
financial officer.
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“Basically our problem was for five years, our taxable assessed values were absolutely stagnant and at that time
we had a growth of 2,000 kids,” Schiele said.
He said the district’s options were to increase class sizes, install more portables or issue capital appreciation
bonds. The school board was likely to choose bigger classes, he added.
“It’s the choice of death by firing squad or death by electrocution,” Schiele said. “The bottom line is, if you put
people in an insane situation, don’t expect rational decisions.”
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