TEMPLE, TX — The school board of the Temple Independent School District received an update during its Nov. 9 meeting regarding a recent refunding of 2011 bonds to save taxpayers millions of dollars in interest.
“A bond refunding is the voluntary restructuring of bond debt. It’s comparable to refinancing a mortgage with a few notable exceptions,” said Kent Boyd, assistant superintendent of finance and operations. “Unlike refinancing a mortgage, districts must wait a predetermined amount of time before the bonds are callable — which is financial speak for being eligible to refund.”
The district’s 2011 bonds become callable in February of 2021, but the district began preparing for the refunding early in 2020. As a part of the regularly scheduled March board meeting, the school board delegated authority to refund the bonds to district administrators.
This allowed them to shop the market with parameters set by board members such as term length, maximum size and minimum savings.
“Another difference between restructuring bond debt versus mortgage debt is that interest rates vary for each year of the term, but, unlike variable rates for mortgages, rates are not subject to future market conditions and are instead agreed upon in advance at the sale of the bonds,” Boyd added.
In 2011, the bonds, which were initially sold to fund capital projects outlined by the district, had varied interest rates between 3 and 4.25 percent. When seeking board approval to explore refunding this spring, Specialized Public Finance, Inc., the district’s financial advisor estimated market rates to be between 2.5 and 3 percent.
“With the criteria set forth by the board, we worked with our financial advisor to seek the most favorable rates available,” said Kallen Vaden, chief financial officer for Temple ISD. “It was estimated that, with market rates as they were, we could effectively accomplish a savings of 11 percent, or $3.9 million, for our taxpayers over the course of the term.”
Like refinancing a mortgage, refunding bonds does not change the principal balance, but it saves money in interest to be paid over the life of the bonds. In October, the district administration officially refunded the bonds with an average interest rate of 1.932 percent and no change to the term length.
These rates resulted in savings that are closer to 19.7 percent, or $6.3 million, over the remainder of the term. For the individual taxpayer, this reduces the overall tax rate by .5-1.3 cents based on current values. The district anticipates that savings will be reflected beginning in 2022.
“The money saved does not go into the district’s bank account, it is simply money that we will not collect from our taxpayers to meet the district’s financial obligations,” Ott said. “This community committed to funding the projects outlined in the 2011 bond election by voting for it. We owe it to our taxpayers to look for any way we can lessen their tax burden throughout the bond process.”