If a school district is hoping to start bond renovations soon, the timing isn’t ideal. The Texas Permanent School Fund‘s $117 billion Bond Guarantee Program only has $26 million remaining to guarantee school bonds. So districts are more likely to see high interest rates and lower renovation funds without an active guarantor program. Across Texas, 44 districts – including Austin, Lake Travis, and Pflugerville – were denied guaranteed bonds because of the PSF limit in 2022. In November, only $3.5 billion remained in the program, compared to the $15 billion in bonds that 61 school districts proposed. The good news is a bill in Washington, D.C., could axe the limit altogether.
U.S. Rep. Lloyd Doggett, D-Austin, filed the Keeping Texas School Construction Costs Down Act (H.R. 32) in early January with co-author Rep. Jodey Arrington, R-Lubbock. If it’s passed, school districts will still be required to have insurance behind their bonds to show investors, but there won’t be a risk of losing the PSF as a guarantor. And the legislation won’t cost the state any money. If it fails to pass and the Bond Guarantee Program runs out of funding, the Texas Education Agency estimates that Texas school districts will spend $425 million in financing costs and interest rates.
The Texas PSF was created in 1854 with $2 million (about $71 million in 2023 dollars) and is currently managed by the State Board of Education and the Texas General Land Office. The diversified investment portfolio supports public and charter schools, and allows school districts to get AAA bond ratings when they go to market, which gets them the lowest interest rates and consequently more funds to use for renovations of school campuses, new equipment purchases, or electric school buses.
After a year and a half of communication with the federal government and trying to rally Texas lawmakers to pressure the Treasury Department to extend or remove the limits to the program, Rep. Doggett says the Internal Revenue Service hasn’t reached a conclusion. “Texas schools and Texas voters deserve nothing less than an immediate fix to this school finance issue – so our taxpayer dollars go as far as possible to serve our students,” he said. So far, there’s no opposition to the bill.
Austin ISD Chief Financial Officer Ed Ramos told the Chronicle in November that he thought the IRS would have intervened by now and that the district would move forward with its renovation projects without a guaranteed bond. Now, AISD has no choice but to do so and plans to start projects funded by the 2022 bond this year.
This article appears in February 17 • 2023.