Property tax management/minimization and timing of bond sales

  • Once a bond referendum is passed by the voters, the bonds become authorized and are available to be sold and issued.  These general obligation bonds are considered tax-supported debt.  Tax-supported debt is repaid by the revenue generated from the Interest & Sinking (I&S) tax rate.  The Interest & Sinking fund pays the principal and interest payments of the outstanding debt.   As debt is retired (paid-off), the overall outstanding principal is reduced.  As new bonds are issued, the overall outstanding principal rises.  School district bond interest income is tax free to the holder of the bond. 

    Prior to the issuance of bonds, the district must first update its credit ratings.  The school district’s chief financial officer works closely with each bond rating agency to provide information on the current and long-term projected financial health of the district.  The rating agencies utilize prior financial data and future estimates to issue a bond rating.  The District currently maintains a very strong credit rating of AA+ from Fitch and an AA+ from Standard and Poor’s, which were reaffirmed in March 2021.  The stronger the credit rating, the better interest rate the district enjoys when they sell bonds.  This is the same principle as an individual borrowing money to purchase a home.  The better a person’s credit score, the better rate of interest he or she receives on the loan.  Coppell ISD enjoys some of the very best interest rates in the nation due to its strong financial health.

    After the credit ratings are affirmed, the CFO works closely with the district’s third-party financial advisor regarding the timing of the bond sale.  The goal is to issue the bonds on a day and at a time when interest rates are at their lowest.  Ahead of the actual sale date, the Board approves what is called a parameter sale.  This gives the CFO and financial advisor flexibility to sell the bonds at a time and date when rates are at their lowest.  Plus, the district staggers the sales of the overall authorized bonds to minimize the tax impact.

    The 2016 bonds were sold in three separate sales over a four-year period.

    $93,365,000 (August, 2016)
    $71,810,000 (February, 2018)
    $83,865,000 (May, 2019)
    $249,040,000 (Total authorized bonds sold)

    At the time of the election, it was estimated the debt service tax rate (I&S rate) could potentially increase from $0.269 per $100 of property valuation to as high as $0.368 per $100 of property valuation. This $0.099 increase in tax rate would have equated to about a $25 per month increase in taxes on the average home in Coppell ISD.  For transparency, this is the rate that was communicated to voters prior to the election.  However, due to the following factors, the actual debt service tax rate has declined by about one penny since 2016 and is at a current rate of $0.2586 in 2021.

    • Lower than expected interest rates for each of the three bond sales
    • Timing of the sales were very favorable in minimizing the interest rates
    • Excellent bond ratings of AA+ were affirmed by Fitch and Standard and Poors
    • Property (home and commercial) values grew at a greater rate than anticipated
    • New construction of homes and commercial buildings were at a greater pace and value than anticipated

    All of these factors have enabled the district to currently (2021) assess a debt service tax rate about $0.109 per $100 valuation less than was originally conveyed to the taxpayers during the election process.  This is about a $327 annual savings on a home valued at $300,000.

    Another important fact is Coppell ISD ensures the repayment of the bond principal equates as closely as possible with the life of the asset that is purchased with bond proceeds. That is, taxpayers should not be paying for an asset after the asset is retired.  This would be equivalent to still paying on a car loan after the car has been disposed of.  For example, bond proceeds used to purchase technology are repaid within 6-10 years depending on the type of technology device.  New building bonds, while the buildings are designed and built with a life of over seventy years, are repaid within 30 years.  Bonds used to purchase furniture and fixtures are repaid within 20 years.