Katy ISD board of trustees members voted to approve a resolution to defease two outstanding bond debts June 22. The move enables the district to pay down a portion of its bond debt, similarly to how a mortgage debt is paid off early, said Christopher J. Smith, KISD chief financial officer.

The district will pay approximately $12 million of outstanding debt from the 2007-A unlimited tax school building bond and the 2007-C limited tax refunding bond. The bonds were approved by voters during the 2006 election and issued in March and April 2007, respectively. The bonds were originally set to mature between 2027 and 2037.

“Over the last two fiscal years we’ve been able to defease about $19 million [in bond debt], saving taxpayers a little over $15 million in interest,” Smith said.   

The current defeasance will result in roughly $6.5 million in interest savings that would have otherwise been paid by taxpayers over the course of repayment, Smith said.

Bond debt payments are paid through the district’s debt service fund. Forty cents of the district’s tax rate goes toward this fund to pay down more than $1 billion in outstanding debt principal and interest.

In order for a bond debt to be defeased, it must be a callable bond and the interest rate should be lower than when the bond was issued. The 2014 KISD outstanding bond debt summary shows the 2007 bonds were issued at 4.0–5.0 percent interest, which was higher than the interest rates in 2014. Rates dropped last year due to improved economic conditions and it made financial sense for the district to defease these bonds and save taxpayers interest payments, Smith said.