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Debt Management Update

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School District Taxes

Maintenance and Operations Tax (M&O)

General Fund

Interest and Sinking Tax (I&S)

Debt Service Fund

To fund the day-to-day operations of the school district

To pay for debt incurred for new construction, capital, technology

Current M&O Tax Rate $1.04

Current I&S Tax Rate $0.4006

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M&O I&S Average NEISD home market value

(before exemptions/homestead cap) $192,936 $192,936

Average NEISD taxable value

(after exemptions/homestead cap) $176,216 $176,216

Taxable Value divided by 100 $1,762 $1,762

Tax Rate per $100 of taxable value $1.0400 $0.4006

Total Taxes $1,832 $706

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Interest & Sinking Taxes

(Debt Service)

You Build a New Home

$190K $190K

$900

/mo When you build a $190,000

home, the bank gives the builder $190,000 today; then you give the bank

$900/month for 30 years

(your mortgage).

NEISD Voters Approve a Bond

$200M $200M $ 200 M $ 200 M $10M/yr If voters approve a $200M bond issue, NEISD sells $200M of bonds to

investors. NEISD uses the $200M to pay for

construction. NEISD taxes property owners $10M/year for 30 years and uses the $10M to pay back investors.

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July 2012 to July 2015

July 2012  Issued first bonds of the 2011 Bond Authorization

$101.3 million of traditional 30-Year fixed rate bonds

July 2012  Issued first refunding bonds since February 2007

$79.3 million to refund certain outstanding bonds from 1999 & 2004

July 2013  Issued $207.7 million of bonds of the 2011 Authorization

$58.9 million of 30-Year fixed rate bonds (Series 2013)

$75.0 million of 1-Year variable rate bonds (Series 2013A)

$73.8 million of 2-Year variable rate bonds (Series 2013B)

February 2014  Issued $33.2 million of refunding bonds
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July 2012 to July 2015

April 2014  Issued $121.7 million of refunding bonds

• Refunded certain outstanding 2004 bonds

May 2014  Issued final $70.8 million of 2011 Authorization

• 5-Year variable rate bonds

June 2014  Issued $121.7 million of refunding bonds

• Refunded certain outstanding 2004 bonds

July 2014  Remarketed 2013A variable rate bonds

• Converted to 4-Year variable rate bonds

November 2014  Issued $69.9 million of refunding bonds
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July 2012 to July 2015

March 2015  Issued $345.2 million of refunding bonds

• Refunded majority of 2007A bonds

May 2015  Refunding bonds to refund all remaining 2005 bonds ($57.9M)

July 2015  Variable rate 2013B issue will be remarketed

By July 2015, the District will have no authorized-but-unissued debt

AND

All but $68 million of debt issued prior to 2012 that is eligible for refunding will have been paid or refinanced to a lower interest rate

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Refunding Transactions

Just as many homeowners refinanced their mortgages over the past few years, NEISD has refinanced more than $747 million of its debt over the past three years

For bonds, these transactions are known as “Refundings”

Unlike your mortgage, the District’s bonds have “call features” that dictate when a series of bonds can be refunded
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Refunding Transactions

Issue Principal & Interest Prior to Refunding Principal & Interest After

Refunding Savings* % Reduced

2012 $ 109,353,887 $ 99,556,979 $ 9,796,908 9.0% 2014 45,634,127 41,929,239 3,704,888 8.1% 2014A 202,740,872 173,171,739 29,569,133 14.6% 2014B 121,361,901 108,869,481 12,492,420 10.3% 2015 627,845,250 558,255,798 68,589,452 10.9% 2015A 85,259,500 73,153,411 12,106,089 14.2% Total $1,192,195,537 $1,054,936,647 $ 137,258,891 11.5%

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Interest Rates 2007-2014

0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 1 mo 3 mo 6 mo 1 yr 2 yr 3 yr 5 yr 7 yr 10 yr 20 yr 30 yr

Treasury Yield Curve

3/2/15 7/1/14 7/1/13 7/2/12 7/2/07

2012 – First issue from 2011 election

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Interest vs Yield

Amount of District Debt Amount Investor Pays Interest Rate Annual Interest Payment for 30 Years 100,000 100,000 5% 5,000 100,000 100,000 5% 5,000 100,000 100,000 5% 5,000 100,000 100,000 5% 5,000 100,000 100,000 5% 5,000 Yield 500,000 500,000 25,000 5.0% Amount of District Debt Amount Investor Pays Interest Rate Annual Interest Payment for 30 Years 100,000 100,000 4% 4,000 100,000 100,000 4% 4,000 100,000 100,000 4% 4,000 100,000 100,000 4% 4,000 100,000 100,000 4% 4,000 Yield 500,000 500,000 20,000 4.0% Amount of District Debt Amount Investor Pays Interest Rate Annual Interest Payment for 30 Years 100,000 125,000 5% 5,000 100,000 125,000 5% 5,000 100,000 125,000 5% 5,000 100,000 125,000 5% 5,000 100,000 - - - Yield 400,000 500,000 20,000 4.0%
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Variable Rate Debt

Beginning in 2013, NEISD began using Variable Rate Debt Obligations (VRDOs) as a mean to reduce interest costs and pay down principal early

This is not the same as the troublesome adjustable rate loans that got the mortgage industry in trouble

Bonds are issued at a fixed rate for 1-5 year terms

At the end of the initial term, the District can re-issue the remaining balance for another short term or covert them to traditional long-term bonds
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Variable Rate Debt

If a District sells a $100 million “bond issue,” it is actually selling 20,000 individual $5,000 bonds, each with a

different maturity date, usually ranging from 1 year to 30 years

Long-term interest rates are traditionally higher than short-term rates

VRDOs keep all of the debt short, taking advantage of the low short term rate market
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Why Didn’t we Use VRDOs Earlier?

0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 1 mo 3 mo 6 mo 1 yr 2 yr 3 yr 5 yr 7 yr 10 yr 20 yr 30 yr

Treasury Yield Curve

7/2/12 7/2/07

2007

In 2007, there wasn’t any real savings in short term-rates versus long-term term-rates. In 2012, the difference was dramatic.

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Variable Rate Debt

Another key advantage is the ability to pay off principal early, by using a “special mandatory redemption clause”

Example: $75,000,000 VRDO issued for 1 year @ 1%

Interest payment after first year = $750,000

District allowed to levy taxes as if interest rate was 5%, collecting an additional $3,000,000

The additional $3,000,000 must be used to pay down principal at remarketing
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Variable Rate Debt

Year Interest Payments on a 30-Yr Fixed Rate Bond NEISD’s Actual Interest Payments on

all VRDOs Savings

2013-2014 $ 17,807,160 $ 5,047,350 $ 12,759,810

2014-2015 17,683,460 7,040,750 10,642,710

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Bond Issue Structure

Bond Issue Size January 2016 2017 2018 $400 million $150M $150M $100M

$450 million $150M $150M $150M

$500 million $200M $150M $150M

$550 million $200M $200M $150M

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Bond Structure

Mix of 30-year bonds and VRDOs

Board policy allows for 25% of debt to be in the form of VRDOs

Approximately $175M-$250M of the new bonds could be issued as VRDOs, reducing the overall debt service costs
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% Change in Taxable Value

-2.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 201 9 202 0
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Effect of Bond Issue to Taxes

Annual Increase to taxes on a $192,000 home

Bond Issue Size 2016-2017 2017-2018 2018-2019 2019-2020 2020-2021 $400 million $0 $0 $0 $0 $0 $450 million $0 $0 $0 $0 $0 $500 million $0 $0 $0 $0 $0 $550 million $17 $17 $17 $17 $17 $600 million $35 $35 $35 $35 $35

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A Black Hole of Current Information

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