Texas School Districts Face Higher Bond Costs as Public Fund Program Reaches Federal Cap

The Texas Permanent School Fund Bond Program this month denied a request by the Austin school district to act as its guarantor for school bonds that the district planned to sell on Wednesday, in its first of several planned sales over the next six years to pay for voter-approved projects. $2.4 billion bond package in November.

The rejection may be one of many for the fund, which this year is approaching the federally mandated limit on the amount it can repay on public school bonds. For Texas school districts, ditching the fund’s bond guarantee program could mean higher interest rates, insurance premiums, and expenses.

School districts in Texas must obtain insurance to sell their bonds, which guarantees investors that the district will return the money. For years, the Permanent School Fund has acted as a guarantor for school districts, but the state program is approaching the $117.3 billion federal cap.

Without the support of the Permanent School Fund, Austin County could have paid up to $20 million in insurance and interest to guarantee the sale of its bonds for projects from the November bond offer.

“We’ve been watching this for several years,” said Eduardo Ramos, Austin County CFO. “As school districts continue to grow for several years and continue to build and renovate older buildings, the amount of debt we issued has reached the ceiling of the Perpetual School Fund.

The $56 billion school fund provides Texas counties with non-tax income. But according to a December report from the Texas Education Agency, the program is running out of spare capacity. The Internal Revenue Service has historically set the cap at $117.3 billion.

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