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School Districts Could Be Forced To Look For Funding In Tax Dollars

The TEA is in conversations with the IRS to raise the current limit on a state-backed program covering for ISDs bond debt
Photo: focal point | Shutterstock

A state-backed program that has been helping schools get lower rates on bonds since 1854 is reaching its limit and if it does, districts might have to ask taxpayers to help out.

The Permanent School Fund was created to provide Texas public schools with another source of revenue other than taxes. The fund functions as a guarantor when school districts issue bond packages, promising lenders the state will pay them back in the case the school district can’t. This allows schools to receive the lowest interest rates possible for those bonds.

Funded through investments and land holdings, the program has a limit on how much debt it can cover each year and it currently stands at $117 billion. The limit is set by the IRS, which oversees tax-exempt municipal bonds. By October 31, there were only $652.6 million left.

According to the Texas Tribune, the TEA is trying to convince the IRS to increase the limit with no decisions announced yet. In Congress, Democrat Representative Lloyd Doggett from Austin and Republican Representative Jodey C. Arrington from Lubbock have filed House Resolution 9044, which could prevent the IRS from setting a cap for the program. 

Thirteen years ago, after population growth and increasing student enrollment forced districts to renew old buildings and build new ones, the program reached its limit. Only a year later in 2010, the IRS extended the limit, but it was too late for some districts that had to pay higher interest rates on their bonds debt for months.

Despite this extension, the limit might be outdated for today’s expenses, bringing the program to its brink once again. According to the Texas Tribune, ever-rising construction costs have made bond packages bigger and more expensive since 2009. 

In addition to bigger packages, bonds are increasingly harder to sell for districts. In recent years public schools have been in the political discourse spotlight, with many parents and political leaders questioning school districts’ pandemic response as well as race history and LGBTQ+ policies. 

“If you’re talking about having to ask your taxpayers for more money, it can make any bond issue just a little harder to pass,” Ronald Wilson,  the chief financial officer for Hearne ISD, north of College Station told the Texas Tribune. “Anytime your costs are up, you have to look at what your taxpayers are willing to bear, and, you know, it could mean you trim some of your needs,” he added.