How bond elections work
By 01/30/2003 00:00:00
The Ellis County Press
MIDLOTHIAN - Bonds are like taking out a loan from taxpayers to pay for improvements and additions over an extended period of time.
To make it easier for readers, voters and taxpayers, excerpts from an interview with Midlothian Independent School District Chief Financial Officer Larry Keiser are being used as an educational piece for the upcoming bond
elections in the Midlothian, Waxahachie school districts.
'It's like a mortgage. We don't have that kind of money sitting around,' said Keiser, referring to the MISD's $99.535 million bond proposal.
A group of financial advisors and other professional firms hired by districts package the bond proposal for voters, who then decide on Election Day whether or not to help the districts pay for new schools, or athletic facilities.
If an installment - or phase - in the bond election calls for $15 million to be used immediately for a new junior high, as in the case of the Waxahachie ISD, the financial advisors will meet with the construction managers to discuss when the school will be constructed and go through any necessary legal processes.
Corporations or individual investors, via a brokerage firm like Merrill Lynch or Stanley Morgan, can purchase bonds in $5,000 increments when the bonds are 'sold.'
The financial advisors will advertise the sale of bonds on what is called the 'bond market' to underwriters - or investors.
The underwriters will call to find out information about the bonds and if bought, the bonds are funded 30 days later using electronic wire transfers.
As with home mortgages, Keiser said, the bond sales would have closing dates.
Each investing underwriter would have accumulated interest on their investment and actually get paid every six months.
'MISD pays interest every February and August,' Keiser said. 'Sometimes, the big folks buy half-a-million dollars in bonds. So every six months, someone gets a check. I have [a million] sitting waiting to be [dispersed] right now.'
Then, Keiser said, the school district will wire interest payments to the Bank of New York, their paying agent for the interest and principle.
Companies like Standard & Poor's or Moody's will rate districts - or even cities - by using letter charts.
'The more ‘As' the better,' Keiser said. 'It's just like with grades in school. As are better than the Bs.'
The MISD has a solid bond rating, Keiser said, noting the district's ability to absorb debt is reputable.
'That's why these [investors] invest in school districts,' he said. 'They know this is a [solid venture].'
City and school district tax rates are divided into two portions: the Interest & Sinking fund and the Maintenance and Operation fund.
The M&O rate is used to pay salaries and all expenses related to the day-to-day operations of the school district.
The I&S fund, or 'debt service,' pays for the district's debt.
If the MISD bond election passes, taxpayers, according to Keiser, would see a 22-cent tax increase over three years - the amount in taxes a resident pays depends on their appraised home value.
Midlothian's tax rate is currently one of the highest in the area at $1.72 per $100 of home valuation.
The WISD has a tax rate of $1.68 per $100 of home valuation.
Money collected on the increases is funneled into the debt service account to pay down the 'loan' the district took to pay for schools and improvements.
'For a $100,000 [valued] home, the total tax increase is about $4.58 per month,' Keiser said. 'So you're only talking about $13.75 [a month]. In the end, you're talking only $165 for three years.'
Both the WISD and the MISD are facing an explosion in new home sales and student population growth.
Keiser said the need for additional classrooms is crucial, but like Waxahachie, some schools included in the bond proposals won't be built until absolutely needed.
'Right now, the facilities should get us 10 years down the road,' he said. 'None of us like higher taxes, but these aren't big dollars. Five or $10 a month [increase] isn't a reason to move.'