Opinion: Capping bond guarantees would hurt school districts

Public-school bond elections that pass voter approval provide much needed construction and renovation of facilities for school districts across Texas. In November’s mid-term elections, Houston area school districts sought – and voters approved -- $3.8 billion for major renovations, technology and safety upgrades and sports facilities improvements. Austin ISD won a $2.4 billion bond package.

Communities locally and across the state support these bond programs in part because of the guarantee that districts can sell the bonds and pay for the school improvements without raising taxes. The state-backed Texas Permanent School Fund (PSF) program is a big reason why.

Created in 1854, the PSF helps districts get the lowest possible rates on bonds with its bond guarantee program (BGP).  Under the program, the PSF acts as a loan guarantor for public school districts. The program ensures to lenders that the state will pay them back if the school district can’t, enabling the district – and its taxpayers – to benefit from lower interest rates.

But the bond guarantee program is quickly nearing an arbitrary limit established by the IRS, which oversees tax-exempt bonds. If the limit is reached, as happened in 2009, school districts that try to sell bonds won’t have PSF backing and therefore will have to pay higher interest rates on their debt.

The size of recent bond packages has increased significantly due to a growing Texas student population and rising costs associated with building or updating school facilities. Districts across Texas have recently asked for the largest bond packages in history. San Antonio ISD went after a $1.2 billion school bond in 2020. It passed with overwhelming support.

The current IRS cap is five times the fiscal-year 2009 book value of the PSF, or $117.3 billion. According to an Oct. 31 report from the PSF, that leaves only $652 million in available capacity to back new public-school bonds.

According to a January 2022 report from bond-rating agency Fitch, “the BGP is much larger, more highly rated and more diverse than similar pools rated by Fitch.”  Fitch gave the PSF its highest AAA-rating, noting, “from a credit standpoint, sufficient program capacity exists to support further increases in the amount of guaranteed obligations relative to PSF assets beyond what is currently allowed by statute.”

There’s a second, more realistic limit on the BGP. The Texas State Board of Education (SBOE) restricts the program to 3.5 times the current value of the PSF. By that calculation, the BGP could guarantee up to $149.3 billion in public school bonds, or an additional $32 billion in capacity. There’s good reason to believe that the SBOE – which, unlike the IRS is accountable to Texas voters – and Fitch are in a better position to evaluate the stability and capacity of the GBP than the IRS.

Rep. Lloyd Doggett, D-Austin, and Rep. Jodey Arrington, R-Lubbock, have introduced legislation -- House Resolution 9044 -- that would stop the IRS from capping out the Texas bond guarantee program. “The focus here is to keep financing costs at a minimum and investments in our schools at a maximum,” Doggett told the Texas Tribune. “We need action soon.”

Allowing IRS pencil pushers in Washington to cap the bond guarantee program is a disservice to Texas and our 5.1 million public school students. HR 9044 maintains the accountability of the BGP but also takes into account the needs of our fast-growing state. Ask your representative to support this bipartisan legislation that will enable the BGP to continue benefiting Texas public schools and Texas taxpayers.

Hoff is director of public affairs at IBC Bank.

This article originally appeared on Austin American-Statesman: Opinion: Capping bond guarantees would hurt Texas school districts