Although the M&O tax rate may increase, the interest and sinking, or I&S, tax rate is proposed to decrease, which would result in a lower tax rate this year.
The M&O rate increase is planned to pay for operational projects in the district, including projects in a bond proposition and other district initiatives.
Tax swap
A school district’s tax rate is made up of an M&O tax rate—which pays for district operations—and an I&S tax rate—which pays for debt from the issuance of bonds.
According to state law, an M&O tax rate adopted by a school board that is more than the district’s rollback tax rate must go before voters. In FISD’s case, the district is proposing raising the M&O rate to $1.17, the maximum allowed by the state, which triggered an election.
In turn, FISD board of trustees approved a resolution that would lower the I&S rate from the adopted $0.40 to $0.27 if voters approve the M&O rate increase. This is what the district calls a tax swap wherein one tax rate increases while another tax rate decreases.
FISD Chief Financial Officer Kimberly Smith said growing property values in the area give the district the capability to have a lower I&S rate.
“We’ve just been seeing this astronomical property value growth, mainly with all this new development going on,” Smith said. “That coupled with our building program slowing down has given us the ability to flatten out our debt payments and creates this capacity on the I&S side of allowing us to lower our tax rate and still meet our debt obligations.”
The district projects being able to hold the I&S rate at $0.27 for two to five years without increasing it, Smith said.
The need
FISD also placed a bond proposition on the November ballot. The proposed bond includes a series of capital projects. Besides bond dollars, each project would require operational costs as well, Smith said. For instance, if the district builds a new school with bond funds, the district has to pay for staffing that school with M&O tax revenue.
District staff calculated the cost of operations for each bond project. District staff also calculated the cost of other districtwide initiatives, such as reducing class sizes and increasing teacher salaries. Smith said the total operational costs of those projects added up to about $57.5 million.
After calculating the costs, district staff decided to ask the FISD board of trustees for a 13 cent increase in the M&O rate. Some community members have questioned why the district could not raise the M&O rate by less than 13 cents. Smith said the cost of the proposed projects would require more than a 13 cent increase.
“When you look at what would [the proposed projects] mean in terms of a tax rate, it worked out to like $0.163,” Smith said. “Well, we don’t have $0.163 available to us. … Since we identified more than 13 [cents], we decided to ask for the full 13 cents.”
To lessen the burden on taxpayers, Smith said the district proposed decreasing the I&S rate as well, which would result in a 2 cent decrease from the fiscal year 2017-18 tax rate.
If voters turn down the proposed M&O tax rate increase, Smith said the district would have to scale back on some of the projects it wants to pursue.
“If we didn’t get that 13 cents, really what it would mean is we have less capacity to fulfill those needs,” she said. “Lowering class sizes is on that list. If we don’t have the additional operating funding to lower class sizes, then we don’t lower class sizes. It’s not necessarily what would be cut if we didn’t get it; it’s what are we not going to be able to do for our kids in the future.”
FISD would continue with its Priorities-Based Budget Process to see how the district could cut costs regardless of whether the M&O rate increase is approved, Smith said.
