School district bond issues are nothing new in Eastern Jackson County, but how do they work?
School district bond issues are nothing new in Eastern Jackson County.
The Grain Valley School District has had a bond issue on the ballot almost every year this decade. The Blue Springs School District last went to the voters in 2005. Both, once again, are going to the voters Tuesday.
For Blue Springs, it is an $86.5 million bond issue to renovate several facilities and update safety and security systems. In Grain Valley, a $5.9 million bond issue would help pay for the first phase of a new middle school. Neither bond issue would raise taxes.
But how does a bond issue work?
“Bond issues are like mortgages for the public sector,” said Grain Valley Superintendent Chris Small. “It is like taking a mortgage out to build a house, but in our case, we are building a school.”
Under the Missouri Constitution, a public school district can borrow up to 15 percent of its total assessed valuation, minus any outstanding debt. So if a district has $100 million in assessed valuation and no debt, it could borrow up to $15 million. If a district were to go over 15 percent, the election could be invalidated.
“We are always up against our 15 percent because of our growth,” Small said. “That’s why it is hard for us to build schools all at once.”
Once the bond issue is approved by voters, the bonds are sold to investors. Small said in the days before electronic trading, a district would know if a local entity such as a bank purchased the bonds. He said now, however, districts typically do not know the identity of the investors and that the bonds are generally lumped together with other investments to be sold.
Investors receive a semi-annual interest payment. Kim Brightwell, chief financial officer of the Blue Springs School District, said in today’s volatile market, the interest rate could be anywhere from 2.5 percent to 5.5 percent. The exact rate will not be known until the bonds are sold at the end of February.
The cash raised from the sale of the bonds is deposited into a bank account separate from a district’s operational expenses. This account is audited every year, and funds can only be used for projects specified on the ballot. In addition, those funds can only be used for “brick and mortar” type projects such as constructing or renovating a building. They cannot be used for operational expenses such as employee salaries or utility bills.
Brightwell said school districts often make an attempt to offer no-tax-increase bond issues to the public. A tax increase associated with the bond issue is possible, if a district has not hit the 15 percent ceiling. However, in Eastern Jackson County, those are rare. Blue Springs voters have approved 23 consecutive bond issues, none with tax increase. Grain Valley has never put a bond issue with a tax increase before the voters.
“We could have gone as high as $120 million with this bond issue if we wanted to include a tax increase,” she said. “But it is the history of the Blue Springs School District to look at every opportunity to have a no tax increase bond issue.”
Like mortgages, there is window – up to 20 years – in which bonds need to be paid off. The funds used to make the semi-annual payments come from property taxes. A school districts’ tax levy is divided into an operational levy and a debt service levy. It is from debt service, typically about 20 percent of the total levy, that bond issue payments are made.
And like mortgages, the payment is divided between principal and interest.
Currently, Grain Valley is paying on nine bond issues, and Blue Springs is paying on three.
“We like to schedule our payoffs between 12 and 15 years,” Small said. “The bonds are paid off quicker, while also increasing our bonding capacity at a faster rate.”
Other area school districts are also not strangers to bonds. The Fort Osage, Independence and Oak Grove school districts have all had bond issues on the ballot in the last several years, completing projects ranging from a new elementary school in Fort Osage, a new middle school in Oak Grove and building renovations in Independence.