RCAS School Bond Explained: The real facts

RCAS School Bond Explained: The real facts

Coy Sasse

Coy Sasse

There is a fair amount of misinformation floating around regarding the structure of the upcoming school bond. The notion that the Board of Education can arbitrarily increase the mill rate or tax whenever they want is unequivocally false. The District only has the ability to levy the fixed dollar amount to service the debt in a given year. It can never levy more than the debt payment owed that year.

In the highly unlikely event that the entire tax base depreciates, and the bond obligation could not be met, only then could the Board increase the mill rate in order to meet its debt obligation. However, the Board could also choose to cover the “gap” with its Capital Outlay dollars. The Board has publicly stated that its strategy would be to hold the levy at 85 cents and cover any supplemental debt service required with Capital Outlay dollars, unless it was not financially possible to do so.

It’s worth noting that the 10-year average valuation increase for the District is more than 3 percent, which included a recessionary period, and for the past six years the average has been more than 5 percent. If the tax base grows at a faster rate than predicted, the levy amount would likely decrease.

Here are some other facts about the structure of the bond:

• The proposed amount of the bond is $189,553,000. This amount would be amortized over a 25-year period.

• The District will utilize a graduated debt service schedule, in which the total principal and interest payments incrementally increase throughout the 25-year life of the bond. This structure allows the District to factor in valuation increases so that, as valuation grows, so does the bond levy revenue, which allows the District to keep pace with the increasing debt service payments.

• Under the assumed structure the District used to evaluate the bond, the 85 cents per $1,000 of valuation levy is the “break-even” point in the debt service analysis; meaning, the point at which, when factoring in the assumed growth rate, the levy could meet the debt service obligations throughout the life of the repayment period.

• The use of bond proceeds for purposes other than stated in the ballot is strictly prohibited. Because the interest on General Obligation Bonds is tax exempt, IRS regulations strictly regulate the use of the proceeds to fund capital projects. Under no circumstances would the proceeds be able to be used for operational purposes.

• The ballot language that the District has proposed describes the projects and usage of the proceeds and uses language commonly found in General Obligation Bond ballots around the state. These documents are in the public domain and may be accessed by the public for review. The District has retained legal counsel that is highly experienced in bond planning and execution and fully understands the proper usage of bond proceeds.

• This bond structure is a common practice and is used by districts throughout the country.

Lastly, I believe it’s important to mention the current interest rate environment and its impact on this bond and, ultimately, the taxpayer. The current interest rates for municipal bonds are at historic lows. This is a huge factor in the overall consideration of the bond financing package that, ultimately, saves the District and the taxpayer, millions of dollars in interest payback over the life of the bond.

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