Debt Management Update

Transcription

1 Debt Management Update

2 Property Tax Basics

3 School District Taxes Maintenance and Operations Tax (M&O) General Fund Interest and Sinking Tax (I&S) Debt Service Fund To fund the day-to-day operations of the school district To pay for debt incurred for new construction, capital, technology Current M&O Tax Rate $1.04 Current I&S Tax Rate $ Total Tax Rate = $1.4406

4 Homeowners Taxes M&O I&S Average NEISD home market value (before exemptions/homestead cap) Average NEISD taxable value (after exemptions/homestead cap) $192,936 $192,936 $176,216 $176,216 Taxable Value divided by 100 $1,762 $1,762 Tax Rate per $100 of taxable value $ $ Total Taxes $1,832 $706

5 $200M $900/mo $200M Interest & Sinking Taxes (Debt Service) You Build a New Home NEISD Voters Approve a Bond $200M $200M $190K $190K $10M/yr When you build a $190,000 home, the bank gives the builder $190,000 today; then you give the bank $900/month for 30 years (your mortgage). If voters approve a $200M bond issue, NEISD sells $200M of bonds to investors. NEISD uses the $200M to pay for construction. NEISD taxes property owners $10M/year for 30 years and uses the $10M to pay back investors.

6 History Since 2011 Election

7 July 2012 to July 2015 July 2012 Issued first bonds of the 2011 Bond Authorization $101.3 million of traditional 30-Year fixed rate bonds July 2012 Issued first refunding bonds since February 2007 $79.3 million to refund certain outstanding bonds from 1999 & 2004 July 2013 Issued $207.7 million of bonds of the 2011 Authorization $58.9 million of 30-Year fixed rate bonds (Series 2013) $75.0 million of 1-Year variable rate bonds (Series 2013A) $73.8 million of 2-Year variable rate bonds (Series 2013B) February 2014 Issued $33.2 million of refunding bonds Refunded certain outstanding 2005 bonds

8 July 2012 to July 2015 April 2014 Issued $121.7 million of refunding bonds Refunded certain outstanding 2004 bonds May 2014 Issued final $70.8 million of 2011 Authorization 5-Year variable rate bonds June 2014 Issued $121.7 million of refunding bonds Refunded certain outstanding 2004 bonds July 2014 Remarketed 2013A variable rate bonds Converted to 4-Year variable rate bonds November 2014 Issued $69.9 million of refunding bonds Refunded certain outstanding 2005 bonds

9 July 2012 to July 2015 March 2015 Issued $345.2 million of refunding bonds Refunded majority of 2007A bonds May 2015 Refunding bonds to refund all remaining 2005 bonds ($57.9M) July 2015 Variable rate 2013B issue will be remarketed By July 2015, the District will have no authorized-but-unissued debt AND All but $68 million of debt issued prior to 2012 that is eligible for refunding will have been paid or refinanced to a lower interest rate

10 Tactics to Reduce Debt Costs

11 Refunding Transactions Just as many homeowners refinanced their mortgages over the past few years, NEISD has refinanced more than $747 million of its debt over the past three years For bonds, these transactions are known as Refundings Unlike your mortgage, the District s bonds have call features that dictate when a series of bonds can be refunded Usually, only debt 10 years old or greater can be refunded

12 Issue Refunding Transactions Principal & Interest Prior to Refunding Principal & Interest After Refunding Savings* % Reduced 2012 $ 109,353,887 $ 99,556,979 $ 9,796, % ,634,127 41,929,239 3,704, % 2014A 202,740, ,171,739 29,569, % 2014B 121,361, ,869,481 12,492, % ,845, ,255,798 68,589, % 2015A 85,259,500 73,153,411 12,106, % Total $1,192,195,537 $1,054,936,647 $ 137,258, % * Gross savings through remaining life of bonds ( )

13 5.5% 5.0% 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 2007 Interest Rates Treasury Yield Curve 1 mo 3 mo 6 mo 1 yr 2 yr 3 yr 5 yr 7 yr 10 yr 20 yr 30 yr 3/2/15 7/1/14 7/1/13 7/2/12 7/2/ First issue from 2011 election

14 Interest vs Yield Amount of District Debt Amount Investor Pays Interest Rate Annual Interest Payment for 30 Years 100, ,000 5% 5, , ,000 5% 5, , ,000 5% 5, , ,000 5% 5, , ,000 5% 5,000 Yield 500, ,000 25, % Amount of District Debt Amount Investor Pays Interest Rate Annual Interest Payment for 30 Years 100, ,000 4% 4, , ,000 4% 4, , ,000 4% 4, , ,000 4% 4, , ,000 4% 4,000 Yield 500, ,000 20, % Amount of District Debt Amount Investor Pays Interest Rate Annual Interest Payment for 30 Years 100, ,000 5% 5, , ,000 5% 5, , ,000 5% 5, , ,000 5% 5, , Yield 400, ,000 20, %

15 Variable Rate Debt Beginning in 2013, NEISD began using Variable Rate Debt Obligations (VRDOs) as a mean to reduce interest costs and pay down principal early This is not the same as the troublesome adjustable rate loans that got the mortgage industry in trouble Bonds are issued at a fixed rate for 1-5 year terms At the end of the initial term, the District can re-issue the remaining balance for another short term or covert them to traditional long-term bonds

16 Variable Rate Debt If a District sells a $100 million bond issue, it is actually selling 20,000 individual $5,000 bonds, each with a different maturity date, usually ranging from 1 year to 30 years Long-term interest rates are traditionally higher than short-term rates VRDOs keep all of the debt short, taking advantage of the low short term rate market

17 5.5% 5.0% 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 2007 Why Didn t we Use VRDOs Earlier? Treasury Yield Curve In 2007, there wasn t any real savings in short termrates versus long-term rates. In 2012, the difference was dramatic. 1 mo 3 mo 6 mo 1 yr 2 yr 3 yr 5 yr 7 yr 10 yr 20 yr 30 yr 7/2/12 7/2/07

18 Variable Rate Debt Another key advantage is the ability to pay off principal early, by using a special mandatory redemption clause Example: $75,000,000 VRDO issued for 1 1% Interest payment after first year = $750,000 District allowed to levy taxes as if interest rate was 5%, collecting an additional $3,000,000 The additional $3,000,000 must be used to pay down principal at remarketing

19 Variable Rate Debt Year Interest Payments on a 30-Yr Fixed Rate Bond NEISD s Actual Interest Payments on all VRDOs Savings $ 17,807,160 $ 5,047,350 $ 12,759, ,683,460 7,040,750 10,642,710 Total $ 35,490,620 $ 12,088,100 $ 23,402,520

20 Capacity for New Bond

21 Bond Issue Structure Bond Issue Size January $400 million $150M $150M $100M $450 million $150M $150M $150M $500 million $200M $150M $150M $550 million $200M $200M $150M $600 million $200M $200M $200M

22 Bond Structure Mix of 30-year bonds and VRDOs Board policy allows for 25% of debt to be in the form of VRDOs Approximately $175M-$250M of the new bonds could be issued as VRDOs, reducing the overall debt service costs If short-term rates remain low.

23 % Change in Taxable Value 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% -2.0%

24 Effect of Bond Issue to Taxes Annual Increase to taxes on a $192,000 home Bond Issue Size $400 million $0 $0 $0 $0 $0 $450 million $0 $0 $0 $0 $0 $500 million $0 $0 $0 $0 $0 $550 million $17 $17 $17 $17 $17 $600 million $35 $35 $35 $35 $35

25 A Black Hole of Current Information These should all be answered this summer!