By LON BAUGH
I have recently encountered several misunderstandings concerning the current LISD Bond Proposal. As a CPA and former member of the 2008 LISD Bond Oversight Committee (our work ended in 2015), I learned how LISD, along with many other districts across Texas, uses bond monies. I wish to provide the following clarifications for voters to consider for the bond referendum on May 6.
First and foremost, any large, well–run Texas school district must rely on bond monies for school buildings, data processing, athletic and other facilities and major maintenance and renovations essential to providing functional, comfortable and safe learning environments for students and faculty. As such, school bonds also help protect and enhance property values for everyone within those districts. LISD, with more than 53,000 students, is no exception. Bonds are the only proven way for LISD to obtain needed funds that remain, with certainty, in the district, while properly managing tax rates to avoid recapture from Texas’ “Robin Hood” law.
When it applies, Robin Hood takes part of the district’s Maintenance and Operations funds and reallocates our tax dollars to other districts.
The first misunderstanding I have heard relates to the issuance of the bonds. Some have asserted that the authorized bond package amount will be layered on top of the existing debt and mushroom the district’s debt. This is certainly not the case. The bonds are issued in distinct series over time. In fact, LISD issues the bonds over several years only as projects are specifically approved by the school board – item by item. And LISD matches the maturities of those bonds with the useful lives of the assets for which they are used, i.e., bonds used to acquire technology assets are shorter term and retired more quickly than bonds used for new school buildings. It is also important to note that the district has a very experienced chief financial officer, Mike Ball, and has consulted with many experts (i.e., investment bankers, legal counsel and others) to determine how much debt the district should have outstanding at any given time, considering interest costs, tax rates and property taxes, which are the fundamental means by which the bonds and other district obligations are paid.
Another misunderstanding is that the district is making “minimum payments” like some individuals do with their personal credit card balances. The district continuously pays down its bond debt and has always retired its bonds on time or early. During the 2015-16 school year, for example, LISD retired over $91 million of bond debt. LISD neither lengthens the due dates nor increases their amounts of the bonds through refinancing. As noted above, shorter term assets are never funded with longer term bonds. This minimizes interest and other carrying costs. Through this financial management, the district has saved many millions of dollars in financing costs while maintaining its superior credit ratings with S&P and Fitch, the independent ratings agencies.
LISD has also issued bonds for “refunding” – a technique to access lower interest rates for older bonds. This has saved taxpayers literally tens of millions of dollars over the terms of those outstanding bonds without extending the bond due dates. Think of refunding as a type of refinancing where we all benefit from lower interest rates.
Yet another misunderstanding is concern over the fact that LISD bond balances have gone up over time. LISD’s aggregate debt amount has increased because the district has grown (the “needs” side of the equation) and that growth has resulted in new schools and other facilities using bonds that are supported by new residential and commercial developments along with growing property values on existing taxable properties within the district plus other applicable funding sources.
Under Texas law and district policy, LISD manages both its maintenance and operations budget — for salaries, utilities and other recurring expenses — and debt servicing budget — to retire bond principal and pay interest — to remain within LISD’s authorized taxing ceilings. Additionally, bonds have become even more necessary since, under Texas law, the state reduces its funding to LISD as the district’s property values, and thus local tax revenues, increase. Overall, LISD’s financial planning involves fairly complex but manageable balancing to provide funds in ways that avoid Robin Hood recapture of the maintenance and operations tax revenues while providing for the district’s long-term capital needs.
Some LISD stakeholders have taken exception to specific line items in the bond proposal, which reflect the wide variety of needs and concerns across a district serving more than 53,000 students that includes 13 municipalities spanning 127 square miles, one of the largest districts in Texas. Many of the decisions the LISD board faces are tough but necessary in a district of this size. Perhaps the most controversial proposal any school district faces involves rezoning where students and faculty must relocate to other schools. In LISD’s proposal, the move would be from two of the oldest schools in the district to newer nearby schools in order to balance class sizes and build a new Hedrick Middle School.
Regardless of whether some may disagree with one or another item being proposed, it remains an undeniable, immutable fact that LISD must have bond monies in order to meet the needs of all its students, educators and other district stakeholders. Bonds remain the only proven way for LISD to ensure that the monies raised will remain within the district, unaffected by the Robin Hood recapture. Just as importantly, LISD continues to improve its systems and processes to ensure that bond monies will be spent efficiently.
Taxpayers should recognize that the new bonds will be issued with the lowest possible interest costs, as evidenced by the district’s practices combined with its continuing excellent credit ratings.
LISD has many school building and refurbishment, technology infrastructure, safety and other important needs that cannot be met without bonds. There is simply no other way for LISD to fund its capital needs. Not authorizing the 2017 bond proposal, because it includes what some individuals consider controversial measures, would be throwing out the baby with the bath water. Authorizing the bond package will help LISD maintain its attractive strengths and benefits for many years to come.