The Dallas Morning News posted a well-written article today regarding the challenges facing fast growth school districts. It’s worth a read to better understand the 50-cent debt test and capital appreciation bonds. The question we have for the Texas Legislature is this: 85,000 new students are enrolling in Texas schools every year. Will the state help build facilities for those students or will they place the full responsibility of debt on local taxpayers? The time to decide is now.
Fast-growing school districts fear double whammy in Texas House
By EVA-MARIE AYALA email@example.com
Published: 08 May 2015 10:34 PM
Updated: 08 May 2015 10:41 PM
AUSTIN — Fast-growing school districts across North Texas — many of them in Collin and Denton counties — are looking for help building new schools as their student populations boom.
But whether the Legislature will pitch in is in doubt, as time dwindles in lawmakers’ session.
The House will consider two bills next week that districts such as McKinney, Prosper and Little Elm are watching closely. One would let fast-growing districts raise their tax rates beyond the current to pay for bonds to fund construction, if voters approve. The bill faces an uphill battle among conservative lawmakers looking to limit the growth of government spending.
The second measure would limit school districts’ use of bonds that have raised questions in the past, and it’s likely to pass the House as soon as Monday.
The resulting constraints could put a double whammy on districts that need to raise funds to build new schools.
“The students are coming, and you can’t just rely on portables. You have to keep up with the growth,” said Michelle Smith of the Fast Growth School Coalition.
Critics contend the districts need to find a way to work with the money they have now and not burden future generations with bond payments. They are concerned about reeling in rising local governments’ debt, which reached $307 billion statewide last year. About a third of that — the largest cut of the debt — belongs to school districts.
“We’re confident that right now the Legislature is going to do what’s right to address the dangers of local government debt by having more transparency and reining in exotic financing tools,” said James Quintero, an analyst for the conservative Texas Public Policy Foundation.
A tax bump
The Denton school district is bursting at the seams with overcrowding at its three high schools. But high school No. 4 won’t be open until next year.
Superintendent Jamie Wilson said ideally, the new campus would have opened this year to keep pace with the steady influx of new students. But the district was bumping up against the limit on the debt service tax rate, which pays for school bond projects. So the high school had to wait.
Currently, school districts are limited to 50 cents per $100 of property valuation for debt service taxes. Fast-growing districts like Denton tend to hit the 50-cent mark more than others because of the constant need to build new schools. But that, in turn, makes it more difficult to borrow money for such projects.
“We would like to ask our citizens to go above that 50 cents if it would allow us to save money on interest in the long run and move forward with projects,” Wilson said. “If the rooftops and families get here before retail and commercial — like it is — then it’s really difficult to pay for the schools that we need now.”
Denton is one of 35 districts in Texas at the 50-cent cap.
A bill by Rep. Eddie Rodriguez, D-Austin, would allow fast-growing districts to go up to 60 cents per $100 of assessed property value with voter approval only if the district first scored high on the comptroller’s efficiency rating system, adopted an improvement plan and showed how it is saving taxpayers’ money. About two dozen districts would qualify.
“This bill falls right in the line of local control,” Rodriguez said. “We’re not raising any taxes. We’re allowing the school districts to go to the voters to determine if they want it. But apparently, the local-control mantra doesn’t work when it comes to this.”
Quintero, of the conservative group, said districts need to do a better job of managing the taxing abilities they already have rather than extending them. That means not using long-term financing for items with a short lifespan, such as computers and tablets.
“To simply give them more money to put on the credit card is not a smart way to manage debt,” Quintero said.
Districts facing unprecedented growth have tried to get creative to pay for construction. Many have turned to a controversial form of borrowing called capital appreciation bonds.
Such bonds don’t count against the district’s debt until they come due in one lump sum, sometimes decades later. But in that time, districts aren’t paying down the interest, so the debt balloons to as much as 10 times what was borrowed.
Critics say such debt could be difficult to pay when it comes due. Further, they worry about the strain it puts on the state, as the bonds are guaranteed by the Texas Permanent School Fund.
“We have a concern that we’ve guaranteed more than what we have funds for,” Rep. Dan Flynn, R-Canton, said at a recent legislative hearing on capital appreciation bonds. “If local people want to vote the debt, they just need to be sure they know what they’re voting for.”
The bonds came under greater scrutiny in recent years as they were cited as the reason some California government agencies went bankrupt. The Austin-area Leander school district and others — including some in Collin County — also took heat for their use of these bonds.
Since then, some districts — including Frisco — eased up on issuing the bonds. Still, 99 percent of all such bonds issued in the state last year were for public schools.
Flynn filed a bill to restrict use of the bonds. It would require school districts to be more transparent about the financing, to disclose possible relationships between government officials and professionals associated with the bond issuance, and to limit the bonds to a 25-year maturity date.
The Fast Growth Coalition has supported the bill in hopes of avoiding an all-out ban, such as one offered by Sen. Juan “Chuy” Hinojosa, D-McAllen. He noted at a hearing this week that between 2007 and 2011, more than 700 capital appreciation bonds were issued in Texas for a total of $2.3 billion. The future payment on them would exceed $20 billion.
School district officials also say they want to avoid using such costly means of borrowing. But unless the 50-cent limit is adjusted, they are stuck, they argue.
“If they are used in small amounts, then [capital appreciation bonds] are another tool in the toolbox to help,” Smith said. “You can’t sit around and not build when you’re a district like Frisco adding 3,600 kids a year. You have to build.”