How are school bond projects paid for? KSAT Explains

Ahead of the May 6 election, we’re digging into school bonds

A handful of school bond proposals are often on the ballot each time local elections are held.

Typically, they’re not the contests that get a lot of attention during campaign season. But they’re not insignificant races by any means, especially considering the money attached to these proposals.

“Now we’re at 28,000 students. And if you look forward in five years, we’re going to be hitting that 35,000 student mark,” said Steve Stanford, Comal ISD’s assistant superintendent of communications.

In Comal ISD, a big bond hopes to accommodate that considerable growth.

Three bond proposals within the district total roughly $634 million.

“Just on the north side of our district on I-35, there are 6,000 new homes,” Stanford said. “There’s 70 active developments in Comal ISD right now.”

New schools, improved athletic facilities, technology upgrades, and safety and security measures are included in the Comal ISD Bond.


“We’re going to put in an emergency operations center that will allow us to monitor those door sensors, allow us to monitor our cameras from a central location,” said Stanford.

While rapid growth is the challenge in Comal ISD, age is an issue in Alamo Heights ISD.

“All that money that we raise through bonds stays within Alamo Heights, and we put it to use as far as our buildings go,” said Mike Hager, AHISD’s assistant superintendent for business and finance.

The AHISD bond, totaling $371 million, also comes in three proposals.


Included in the proposals are renovations to every campus -- most of which date back to the 1950s -- and upgrades to athletic facilities, technology and security.

Think of a school bond like a home loan

“You look at it like you’re buying a house,” said Hager. “You get preapproved for so much money to buy a house.”

Voters decide whether to give a school district the pre-approval to take out a loan.

“Most of us, if we were just to write a check out of our checking account, we don’t have the money to buy a house just by simply writing a check,” Stanford said. “It’s something that we have to finance, and school districts are in the same position.”

Texas public schools are funded by state and local dollars. Local funding comes from property taxes.

On your property tax bill, you’ll see the tax rate for your district.

That rate is the total of two tax rates that get poured into two separate buckets:

  • Maintenance and Operations (M&O)
  • Interest and Sinking (I&S)

The M&O budget covers day-to-day expenses, not unlike your own personal budget. Think of things like fuel, utilities, and people.

“Eighty-one percent of our budget is for salaries,” Stanford said.

Interest & Sinking are the funds used to pay off debt for school districts.

When voters approve a school bond, they’re allowing the district to take on that debt to make big projects happen.

Once voters say yes to a school district’s plan, the district sells bonds to get the money.

“You basically hire a banker who goes out to the institutional market -- the big mutual fund companies, Vanguard and Fidelity,” said outgoing Northside ISD Superintendent Brian Woods, Ph.D. “You’ve got other institutional investors who are interested in school district bonds because it’s treated under the tax law as a municipal bond, like a city or a county bond. And there are very clearly tax advantages to owning that kind of bond.”

The I&S funds are used to pay off the interest and principal from selling those bonds.

Texas Permanent School Fund

The Texas Permanent School Fund (PSF) has a Bond Guarantee Program that helps school districts secure a lower interest rate when selling bonds, which leaves more money in the I&S bucket.

The PSF was created in 1845.

In the 1876 Texas Constitution, the fund was endowed with land.

Today, mineral rights from 13 million acres of land in Texas and 10 miles out into the Gulf of Mexico pour money into the fund.

“Because the fund is so massive, hundreds of billions of dollars, you would get as a school district the AAA rating -- the top rating when you go out to sell,” said Woods.

That helps districts get a lower interest rate.

But there’s a looming problem: the PSF is about to hit its limit.

The IRS says Texas can guarantee roughly $117 billion in school bonds.

Texas schools have already applied for $111 billion in voter-approved bonds. That doesn’t include the proposals on the May ballot, which total roughly $24 billion.

That means the bonds that get approved by voters this May most likely won’t be guaranteed by the state if the IRS doesn’t raise the limit.

“So what will happen very soon is that folks who are going out to the market to sell bonds will sell them at the district or the charter rate. Their underlying rating, which in very few cases is a AAA rating,” said Woods. “And the lower it is, the higher the rate that that district is going to pay. And that’s going to translate to local taxpayers.”

What to know about the wording on the ballot

At the end of school bond proposals on the ballot, you’ll see the words: “This is a property tax increase.”

Sounds straightforward, right? But it’s not.

The state began requiring that wording on the ballot, whether the overall property tax rate you pay the district increases or not.

Remember those two buckets?

Bonds make the I&S portion of a district’s tax rate increase. But the M&O rate fluctuates, too, and could go down.

Because of the increase in property appraisals, M&O rates are expected to decrease in Comal, Alamo Heights and Northside ISDs.

“So we actually project our total tax rate will be less than it is today, but the I&S rate will be more than it is today,” said Hager.

Following the money can be complicated, but these major school projects would be impossible without bonds.

“We would not have the funds in our maintenance and operation budget to be able to do these projects,” said Stanford.

“You essentially wouldn’t be able to operate,” said Woods. “You’d be bankrupt.”

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About the Authors

Myra Arthur is passionate about San Antonio and sharing its stories. She graduated high school in the Alamo City and always wanted to anchor and report in her hometown. Myra anchors KSAT News at 6:00 p.m. and hosts and reports for the streaming show, KSAT Explains. She joined KSAT in 2012 after anchoring and reporting in Waco and Corpus Christi.

Valerie Gomez is lead video editor and graphic artist for KSAT Explains. She began her career in 2014 and has been with KSAT since 2017. She helped create KSAT’s first digital-only newscast in 2018, and her work on KSAT Explains and various specials have earned her a Gracie Award from the Alliance for Women in Media and multiple Emmy nominations.

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