School Finance 101 & Bonds 101 CHRISTOPHER J. SMITH CHIEF FINANCIAL OFFICER APRIL 4, 2017

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1 School Finance 101 & Bonds 101 CHRISTOPHER J. SMITH CHIEF FINANCIAL OFFICER APRIL 4, 2017

2 School Finance 101 HOW DO WE PAY FOR KATY ISD? EXERCISING GOOD STEWARDSHIP OF EVERY DOLLAR WORKING SMART DOING MORE WITH LESS MAINTAINING A BALANCE BETWEEN ADDRESSING TODAY S NEEDS WHILE BEING SENSITIVE TO RESIDENTS TAX BURDEN

3 Enrollment Growth 100,000 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,

4 Property Values Billions Property Values

5 Property Value Information By Category Single Family Residential Minerals 70.0% 60.0% School Finance Overview 50.0% Commercial / Industrial 40.0% 30.0% Vacant Land 20.0% Other 10.0% 0.0%

6 General Fund - Revenue

7 SO, WHAT IF OUR PROPERTY VALUES GO UP? TIER I STATE FUNDING 49% LOCAL PROPERTY TAX 51%

8 OUR STATE FUNDING GOES DOWN! TIER I % STATE FUNDING 35% + 14% LOCAL PROPERTY TAX 65%

9 Breaking Down Local Property Taxes More than half of a school district s revenue comes from its local citizens through property taxes. A school district s tax rate is comprised of two parts: Maintenance & Operations (M&O) Interest & Sinking (I&S)

10 LOCAL PROPERTY TAXES M&O MAINTENANCE & OPERATIONS TAX RATE SCHOOL DISTRICT TAX RATE I&S INTEREST & SINKING TAX RATE Funds the day-to-day maintenance and operations of the district AKA GOF Can only be used to pay debt AKA Debt Service

11 $1.13 Maintenance & Operations (M&O) $0.39 Interest & Sinking (I&S)

12 Tax Rates $2.00 $ $ Interst & Sinking (I&S) $1.40 $ $1.00 General (M&O) $0.80 $ $0.40 $0.20 $0.00

13

14 MAINTENANCE & OPERATIONS (M&O)

15 MAINTENANCE & OPERATIONS (M&O, GOF) Used to account for the daily operations of the district Primary Revenue Sources Property tax revenues State funding Federal

16 MAINTENANCE & OPERATIONS (M&O, GOF) Salaries (for teachers and other staff) Facility repairs and maintenance Bus repairs, maintenance and fuel Food services School supplies and materials Utilities (electricity, water, etc.) House repairs Car fuel and routine services Groceries Cleaning supplies Utilities (electricity, water, etc.)

17 Budget Update - Expenditures *Expenditures based on Official GOF Budget

18 Budget Update - Expenditures $450 $400 $350 $300 $250 $200 $150 $100 $422.1 Instruction & Instruction Related Instruction & School Leadership Support Services - Student Administrative Support Services Support Services - Non-Student $50 $0 $42.3 $65.6 $13.3 $77.8 $10.5 Ancillary Services *Expenditures based on Official GOF Budget

19 INTEREST & SINKING (I&S) DEBT SERVICE

20 School Finance Overview District Budget Debt Service Used to account for resources set aside to pay principal, interest and fees on long-term debt Primary revenue sources Tax revenues State allotments Interest earnings Primary costs Debt principal Interest on outstanding debt

21 Debt Service Funded by Source State 22.9% State 1.7% Local 77.1% Local 98.3% Local 100% to Current

22 TEST TIME!

23 Employee Bus Custodian Teacher Paper/Supplies Debt Fuel Driver Debt Utilities Books for Principal Interest Fees Benefits Buses Salaries $1.13 Maintenance & Operations (M&O) $0.39 Debt Service (I&S)

24 CONSTRUCTION/BONDS

25 School Bonds 101 WORKING CAPITAL CASH FLOW HOW DO WE PAY FOR NEW SCHOOLS? EFFICIENT ACCESS TO CAPITAL MARKETS LOWER BORROWING COSTS

26 As Texans are very much aware Texas is growing! Texas has a booming economy and is a great place to live, so people are flocking here by the hundreds-ofthousands! In fact, about 500,000 people move to Texas each year! That s more than 1,300 people per day! We are very aware Katy is growing!

27 When Enrollment Grows School District s Needs Grow: School districts address the pressures of growth in various, oftentimes creative ways, before asking their taxpayers for more money. However, these are usually only temporary fixes and not always the best, long-term solution for their district as a whole.

28 In most cases, Texas school districts debt takes the form of bonds. School districts issue bonds to pay for big ticket items, like facilities and school buses.

29 What is a Bond Election? School districts are required to ask their local voters for permission to sell bonds. A school board calls a bond election, and voters decide whether or not they want to issue bonds (debt) for identified needs.

30 If voters approve the bond election, the school district then may raise the I&S tax rate to repay the debt to investors.

31 What is a Bond? Investor loans money to a school district, with interest, for a defined period of time similar to a family taking out a mortgage for the purchase of their home Provides efficient access to capital markets Offers lower interest rates than bank notes Major demand of high-grade PSF bonds in marketplace Bond Maturities Cannot Exceed 40 years Matched with asset lives

32 School Bonds 101 Rating Companies Moody s - Aa2 Standard & Poor s - AA Attorney General 50 cent test Permanent School Fund Guarantee - AAA

33 Community Enrollment Needs Analysis School Board Long Range Facilities Plan Facilities Referendum Task Force Construction Bond Referendum Bond Sales Cash Flow Community

34 Bond Authorizations 1994 $90 Million 1996 $130 Million 1999 $324 Million 2002 $315 Million 2006 $269 Million 2010 $459 Million 2014 $748 Million

35 Katy ISD High Schools since 1995 Schools Added: High School

36 Katy ISD Junior High Schools since 1995 Schools Added: Junior High

37 Katy ISD Elementary Schools since 1995 Schools Added: Elementary

38 Community Enrollment Needs Analysis School Board Long Range Facilities Plan Facilities Referendum Task Force Construction Bond Referendum Bond Sales Cash Flow Community

39 310,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000,000 90,000,000 80,000,000 70,000,000 60,000,000 50,000,000 40,000,000 30,000,000 20,000,000 10,000,000 $180 Million Sold Feb 2015 $275 Million Sold Feb 2016 $293 Million to be Sold Apr 2017

40 5 Technology New Facilities Retrofits Infrastructure USEFUL LIFE OF ASSET - YEARS PAC Retrofits Turf Replacement Buses Furniture, Fixtures & Equipment Carpet Replacements Component Replacement: Security Upgrades Building Upgrades Light Pole Replacement Cafeteria Flooring Systems (Fire/Alarm) Chillers Lighting Retrofits Comprehensive Renovations Portable Buildings Infrastructure Kitchen Renovations 30 New Facilities Land BOND MATURITY - YEARS

41 Debt Management Tools Bond Refundings Bond Defeasances Build America Bonds (BABs) Fund Balance

42 Debt Management Tools Used Recent History Bond Refunding's 2014-A&B: $152.1 Million Combined Gross Savings of $30.7 Million 2015-B: $53.0 Million Gross Savings of $8.1 Million 2016-B: $23.5 Million Gross Savings of $4.6 Million 2016-C&D: $184.1 Million Combined Gross Savings of $26.3 Million Total Gross Savings from Bond Refunding's: $69.7 Million

43 Debt Management Tools Bond Refundings Bond Defeasances Build America Bonds (BABs) Fund Balance

44 Debt Management Tools Used Recent History Bond Defeasances Generated Interest Savings of $17 Million Total Savings from Debt Management Tools $86.7 Million

45 Financial Awards & Recognitions Association of School Business Officials (ASBO) Certificate of Excellence in Financial Reporting Government Financial Officers Association (GFOA) Certificate of Achievement in Financial Reporting Schools FIRST (Financial Integrity Rating System of Texas) Highest possible rating of Superior Achievement

46 Financial Awards & Recognitions Schools FIRST (Financial Integrity Rating System of Texas) Highest possible rating of Superior Achievement Texas Comptroller of Public Accounts: Financial Transparency Star Award

47 Thank you