Texas Drowning In School Bond Debt, $75B Before Interest

Already on the hook for $65 billion in outstanding school bond debt approved and issued between 2007-2013, Texans voted in more mega-school bond debt statewide in 2014 that will pile nearly $10 billion more onto the statewide property tax payer tab. For public school debt alone, Texans will owe almost $75 billion — before interest. 

In the latest go-round of school bonds on the November ballot, the meatiest measure to pass was in Katy Independent School District (ISD), weighing in at $748,118,930, followed by Fort Bend ISD at $484,157,027 and Garland ISD at $455,500,000, the last of which boasted that this was its largest bond package in the district’s history. 

According to the Dallas Morning News, the funds were needed for aging facilities and school security:

The Texas Public Policy Foundation (TPPF) also took a long, hard look at the Frisco ISD measure, pointing out that on a 30-year bond at 4 percent interest, Frisco school district taxpayers would be on the hook for $556 million worth of interest which factored in with principal costs, would bring the amount owed by Frisco taxpayers for just the 2014 bond to a shocking $1.33 billion, which Breitbart Texas reported.

Meanwhile Frisco ISD already held $2.6 billion in principal and interest debt outstanding. That came out to roughly $56,000 per enrolled student. Today Frisco ISD’s debt level is more than twice that of the surrounding school districts — Lewisville ISD ($1.7 billion), Plano ISD ($1.4 billion), Denton ISD ($1.1 billion), Allen ISD ($806 million) and McKinney ISD ($712 million).

James Quintero, Director of the TPPF’s Center for Local Governance provided Breitbart Texaswith a searing reality check on the staggering actual costs of school bonds for Texans. He broke down the figures statewide with not just principal but with interest on bonds issued as of August 31, 2013. 

The “face value” of what people voted on in those bond measures or “principal” may have totaled $65,104,657,568 but once the known interest on the loans were folded in, that layered another $42,971,809,762 onto the debt. 

The actual grand total of public school district debt was $108 billion, or $108,076,467,330 to be exact.

He explained, “Under the current state law, local governments are not required to disclose the interest costs on the ballot for voters. In other words, interest is a hidden cost taxpayers don’t see until it shows up on their property tax bill.”

Another key factor is the funding mechanism behind school bonds — like Capital Appreciation Bonds (CABs). In 2013, Watchdog.org looked at this issue, calling CABs “a product of their time, of $17 trillion national debts, incalculable unfunded national, state and local liabilities and grotesquely underfunded public pensions.” 

Unlike the more common current interest bonds, which require that the issuer pay off the principal and interest throughout the term of the bond, interest on capital appreciation bonds compounds and accumulates until maturity. It’s more of a kick the can down the road approach. By the time the bill comes due for a new generation of taxpayers, many of whom had no say in issuing the bonds, the elected officials who did are long out of office or dead, Watchdog.orgalso wrote.

Breitbart Texas highlighted another problem — school CABs do not have regular payments. Interest and principle accrue and compound until maturity when a “balloon payment” is due. 

One of the more disconcerting realities is unpredictability. Previously, TPPF pointed out toBreitbart Texas that the success of a CAB is reliant on “the continued explosive growth of Frisco and the surrounding area to meet its obligations. The need to expand must be balanced against the reality that Frisco’s present fiscal situation is tenuous at best.” 

This kind of funding formula wilts in times of economic downturn, leaving Frisco ISD “stuck with an enormous amount of debt and facilities it cannot fill and taxpayers are going to have to pick up the tab,” according to TPPF.

In 2011, the Comptroller’s office reported that Texas had the second highest debt in the nation. Public school bonds are not the only debt in Texas — yet accounts for the largest category of debt in the state.