Bond News

There are two types of taxes that make up your school tax bill. The first, M&O (Maintenance & Operations) covers operating expenses such as salaries and utility bills. The second, I&S (Interest & Sinking), raises revenue to pay debt service on capital projects. Because Round Rock ISD has been paying off past debt, it is expected that we have enough capacity in this category to pay debt service on the Bond without raising the tax rate.

Another important factor: Round Rock ISD will not borrow the total amount of the Bond on Day 1. Instead, the District will utilize a borrow-as-we-go financial model, much like a credit card. The Bond is like increasing our credit limit, but it doesn’t mean the District will be borrowing all the money right away. We’ll borrow and pay off the debt as we need it for projects underway. The school District has actually lowered the tax rate since the 2014 Bond. We did this by paying off existing debts, refinancing for better rates and taking advantage of an expanding tax base. The 2018 Bond is not expected to increase the tax rate for our community as it has been designed to leverage a number of district assets to keep the Bond in line with the District’s ability to repay.

Key Projects of Bond 2018 include:

• Construction of elementary school to alleviate crowding on District’s East side
• Upgrades to campus safety and security
• Classroom additions to replace portable buildings
• Additional funds for Westwood High School Master Plan Phase 4
• Additional funds for McNeil High School Master Plan Phase 2
• An investment in technology
• Construction of a practice swim facility
• Playground upgrades
• Heating and cooling system, roofing, electrical, plumbing, flooring replacements and upgrades

School districts can only sell bonds if authorization is received by voters. A bond is a debt instrument in which an investor loans money to the District. The proceeds from the bond are used to finance capital projects and other long term items. The District repays the principal of the bonds, along with interest, over a period of time. Under current Texas laws, the maximum maturity of a bond is 40 years. However, the maximum maturity ever issued by Round Rock ISD is 25 years, even though projects financed by the bonds have a longer life than 25 years. Assets financed by the bonds that have a shorter asset life, are sold with shorter maturities that align with their useful life.

The sale of bonds begin with an election to authorize a specific amount—the maximum amount of bonds the district is allowed to sell.  The school district sells the municipal bonds as funds are needed for capital projects. On the day of the sale, interested investors submit orders for the bonds which have been priced according to market demands.  Most bonds are purchased by large institutional investors or pension funds. Some may be purchased by retail institutions that sell them to individuals in the secondary market. Bonds are sold in multiple maturities meaning they mature at different times over a period of years. The interest rate is typically different depending on the maturity date. Longer maturities typically carry a higher interest rate. The interest rate is determined based on market conditions and the quality of the credit. In other words, the better the credit rating, the lower the interest rate on the bond and the lower the cost of borrowing. Round Rock ISD is the only school district in Texas to achieve a AAA Bond Rating from both Moody’s and Fitch credit rating agencies. Principal and interest on the bonds are repaid over a period of time with funds from the Debt Service tax rate.

In accordance with the Texas Education Code, bond proceeds can be used for the construction, acquisition, and renovation of school buildings, the acquisition of land and the purchase of capital equipment such as technology and school buses.

The school finance formulas no longer provide the necessary funds that would allow the purchase of non-facility capital items  through the General Operating Fund and still meet the ongoing day to day expenditures of educating students and running a large organization. In addition, it is advantageous to the District to pay for capital items such as technology, buses, land and portable buildings with bond money rather than from the General Fund as the cost can be spread over the life of the asset rather than a single purchase diluting the General Operating Fund.

Debt is not incurred until the Bonds are actually sold. Historically, the District has had several sales of Bonds from a particular Bond referendum. The Bonds are sold to align with the need for the funds to construct schools and purchase equipment.

No. Voter approval is an authorization for the district to issue bonds. The bonds are sold in the future only when funds are needed.

A school district’s tax rate consists of two parts: 1) Maintenance and Operations (M&O) and 2) Debt Service (I&S). Maintenance and operations taxes fund the General Operating Fund, which pays for regular operating expenditures of the District such as salaries, supplies, utilities, insurance, equipment and other costs. The Debt Service tax pays for school bonds and can be used only to retire the principal, interest and expenditures of bonds sold for specific purposes. The Board of Trustees adopts the tax rate each year, typically in September.

Upon reaching the age of 65, citizens can apply for an exemption. An additional exemption of $10,000 is applied to the assessed value of property and school district taxes are frozen in the year the taxpayer turns 65 years of age. Taxes will not increase as a result of a school bond election.