School Districts In Texas Brace For Financial Impact As Bond Guarantee Program Runs Dry

A state-backed programme that has helped school districts receive the lowest bond interest rates and maintain their credit scores for decades has hit its debt limit, which could cost taxpayers millions.
If a school district can’t pay back bond lenders, Texas’ Permanent School Fund will. It can only guarantee so much debt.

Tax-exempt municipal bonds have a $117 billion IRS maximum, which was reached in December. Since then, at least 49 school and charter districts have been denied PSF loan backing owing to capacity issues, resulting in over $6.87 billion in unguaranteed bonds.

Central ISD anticipates

Carolyn Perez, the PSF’s communications director, said the bond guarantee programme will have limited capacity for now, but it may be able to take on more bonds if other schools pay off their debts.

As the state’s population and student enrollment grew, schools issued more bonds to renovate and build new schools, reaching the program’s debt maximum in 2009. Later that year, the IRS raised the program’s debt ceiling, but school districts had to pay higher bond interest rates for two months.

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During the last decade, bond packages have grown in size and expense as construction prices rise, and district leaders want to pass many projects in one package to avoid asking taxpayers for extra money. Judson and East Central independent school district voters decisively supported $345 million and $240 million bonds in November. Both districts pledged to begin immediately after the election.

School Districts In Texas Brace For Financial Impact As Bond Guarantee Program Runs Dry

East Central ISD anticipates 10,500 students to almost treble by 2030. Its bonds will build two primary schools, a middle school, and classrooms at Oak Crest and Highland Forest elementary schools. It will also fund energy-efficiency renovations, security vestibules, and safer pickup and drop-off zones. Two Judson ISD bond proposals will support an elementary school, a middle school, a new bus fleet, and security upgrades.

Perez said the Texas Education Agency and PSF are working with Congress to raise the debt limit through legislation or IRS action. Reps. Lloyd Doggett, D-Austin, and Jodey C. Arrington, R-Lubbock, introduced House Resolution 32 to eliminate the bond programme ceiling.

“Without a corrective course, we’re currently barreling toward sinking hundreds of millions of education dollars into needlessly high financing costs,” Doggett said.

Texas school authorities

Texas school authorities must decide whether to suspend their bonds or continue their projects at higher interest rates, perhaps raising property taxes, until Congress decides the bill’s destiny.

Last year, Austin Independent School District voters approved a $2.44 billion bond package to improve campus infrastructure. Chief Financial Officer Ed Ramos said the district sold roughly $600 million of its bond debt in January after being rejected for the PSF guarantee programme in November because construction prices are rising and the district cannot afford to delay its projects.

Ramos predicts the district will pay $20 million in interest that the PSF programme could have prevented.
Last year, Seguin ISD voters approved a $131 million bond. Superintendent Matthew Gutierrez said the district could not secure $40 million in PSF-guaranteed bonds.

Seguin ISD guaranteed taxpayers a 2-cent property tax increase from the bond package. So, district leaders must decide whether to issue their bonds in March without the PSF’s bond guarantee, potentially raising the tax rate, or wait to see whether the ceiling is raised again, risking higher construction expenses.

“We’re hoping that something will happen here very soon so that we aren’t impacted,” Gutierrez said. “It would be really unfortunate to have to think about scaling down the scope of the projects.”


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