Leander ISD uses savings, cuts to balance budget

Spending the savings

When the budget-planning process began, LISD faced an approximate $14.7 million budget shortfall, which includes current expenses and new requests for funding. Staff was able to slash $4.7 million in anticipated spending and is set to use $10 million from the district's savings account.

The board typically maintains a savings account balance of 17 percent to 25 percent of its annual maintenance and operations budget, enough to run the district for two to three months, Skoviera said. The current savings account balance totals approximately 28 percent of the maintenance and operations budget. In December, the board agreed to tap into savings, as it has in prior years, in order to balance the budget.

"The staff laid out a four-year plan. This year we are going to ask for $10 million, next year [2014–15] we are asking for $6 million and the next year [2015–16] we are asking for $3 million," she said. "And even with those cuts, we have a range in the [savings] that is within our policy of two to three months. We did this thoughtfully because we knew it was going to be rough here for a while, especially with those court cases pending."

Litigation

Like many districts in Texas, LISD awaits pending changes to the way public schools are financed through the state. In February, state district court Judge John Dietz ruled that Texas' finance system is unconstitutional; however, he has not released a full explanation detailing how the state has inadequately funded public schools. During the recent legislative session, lawmakers restored about $3.4 billion for the next two years to schools—compared with the approximately $5.4 billion that was cut in 2011.

Skoviera said LISD expects to receive about $1.2 million more from the state for the 2013–14 school year compared to its current 2012–13 budget. LISD is not involved in the litigation that Dietz presided over but will undoubtedly be affected by its outcome, LISD board President Pam Waggoner said.

"'How do you want to fund schools?' is the question we will be asking the Legislature over the next few years. [State education financing] changes so much, every two years, so it's hard to plan out the budget," she said. "First, we have to know what the outcome of the lawsuit is, and second, we have to get through this legislative session. It's not over yet—we have to get through special session."

Tax rates

The other unknown facing LISD is yet-to-be determined property values within district limits, in turn leaving the tax rate uncertain. Preliminary estimates from the Williamson and Travis county appraisal districts show LISD-wide property values increased approximately 6.5 percent, Skoviera said. Staff had previously used conservative tax base growth estimates between 1.5 percent and 3 percent when drafting a preliminary budget.

In addition to property values, which are set to be finalized July 25, LISD's debt repayment schedule will affect the tax rate, Skoviera said.

LISD's property tax rate is comprised of two portions: the maintenance and operations rate, which includes teacher salaries and day-to-day expenses, and the rate that funds debt repayment. The maintenance and operations tax rate is capped at $1.04 per $100 of assessed value, and a district's debt repayment rate cannot exceed 50 cents per $100 of value without incurring penalties from the state. Currently LISD's two tax-rate portions combine for a total tax rate of $1.511870 per $100 of value.

Skoviera said the school board is considering refinancing existing bonds that will save the district about $80 million dollars compared to leaving the loans untouched. However, the board is also expected to evaluate staff's request to sell $180 million–$229 million in bonds for capital projects, including the construction of the district's sixth high school.

"We previously talked about an upcoming sale and, in that case, we would combine the sale and the refunding into one transaction," Skoviera said. "Once we do that, I'll know the debt schedule and, therefore, the tax rate."

Bonds

School districts commonly finance construction projects using bonds, which function as a loan for the district. Bonds are sold to investors in the open market and are backed by the state as long as the district's debt repayment tax rate is 50 cents or less per $100 valuation.

LISD uses two types of bonds: current interest bonds, or CIBs, which carry incremental interest and principal payments similar to a home mortgage, and capital appreciation bonds, or CABs, which defer payment until the maturity of the bond.

CABs issued by LISD include a call feature, which sets the time when the district can pay off the bond's earned value to that point in order to get a lower interest rate—assuming the market is favorable. The remaining value is then rolled into a new CAB.

Refunding CABs help the district control the debt repayment tax rate, said Leon Johnson, LISD's bond adviser and senior vice president of Southwest Securities.

"The board has followed a plan for a lot of years in Leander, and the net result is we are now cashing in chips that we set aside when we issued bonds way back," he said. "These chips are allowing the board and school district to manage the tax rate, keep things in check and still be able to provide the facilities for additional children coming in."

Using CABs is more expensive long-term than using CIBs but is essential for many school districts to stay under the required 50-cent mark, he said. If all of the district's $1.3 billion in debt were in the form of CIBs, the district's debt repayment tax rate would be 10–12 cents higher.

"[LISD is] going to pay more on the CAB, but the taxpayer is probably going to come out better than they do on the CIB," Johnson said. "We have to plan things as if the market won't change, but we try to put in as many what-ifs—which is the call feature—as we can. Then when we hit a market like this, we can get some savings."

LISD staff and board members, including Waggoner, testified before the Legislature in April during an attempt to pass a bill banning the use of CABs. Waggoner said under the current 50-cent funding limit instituted by state law, the school board has few alternatives to pay for new buildings and meet growth needs.

"The long-term debt is the right choice for growing schools because it spreads out the burden of payment over generations. We didn't want the entire burden put on our taxpayers today to fund schools that are going to be functional 50 years from now," she said. "I know the growth has slowed but slowing doesn't mean stopping. We are still adding children every year."