The La Joya ISD board of trustees met this Tues. Feb. 4 to discuss a summary of the current debts incurred, along with an analysis of future findings and refunds.
The summary was presented to the La Joya Independent School District by Dr. Miguel de los Santos, the Executive Vice President of Estrada Hinojosa Investment Bankers (a LJISD financial advisor). De los Santos, a former superintendent for the Edinburg, San Benito and La Joya school districts, has experience with successful bond elections, having secured over $665 million of funding throughout his tenure.
Estrada Hinojosa has worked as a financial advisor for 365 school districts, many of which are in Region 1 ESC. The last financing Estrada Hinojosa conducted for LJISD in maintenance tax notes (as an advisor) secured $30 million last year.
De los Santos’ presentation included an explanation of what defines a bond, how bonds work, and how they are financed and refunded.
De los Santos explained General Obligation Bonds (GO), which are authorized by the public. GO bonds are repaid by property taxes, generally from the interest and sinking (I&S) tax rate.
“The majority of your [LJISD] debt is voter-authorized, through bond elections that were put before the voters in past years,” de los Santos said.
The taxes are generally unlimited according to the presentation, and the board can raise the rate to meet the amount needed for payment. Texas school districts are offered full faith and credit from the state through the Permanent School Fund Guarantee (PSF).
“It doesn’t affect your maintenance and operations, it doesn’t affect moneys that you use to pay salaries, or buy supplies and materials and things of that nature,” de los Santos said. “Most of your [GO bonds] that are outstanding are guaranteed and supplemented by the state.”
De los Santos also defined maintenance tax notes (MTN), which are approved solely by the school board and used more broadly. MTNs cannot be used for new construction, and are paid from the Maintenance and Operations part of a budget.
LJISD, the issuer, works with a financial advisor (Estrada Hinojosa), bond counsel (Ricardo Perez Law Firm), underwriters (who lend the money), the underwriters counsel and the Texas Education Agency. Nothing is finalized until authorized by the Texas Attorney General’s office, and a paying agent bank (typically charging $500 to $600 per year) takes in money and dissents payments.
Thanks to the Instructional Facilities Allotment (IFA), which was passed by the state in 1997, and the Existing Debt Allotment (EDA), which was passed in 1999, school districts are receiving assistance in repaying bonds. Bonds not passed under IFA are passed with EDA.
“Many years ago, the very first bond passed here in 1980 was $16 million, and with no state assistance the tax rate probably went up 10, 12, 13 cents,” de los Santos said. “Now, this district can borrow $70 to $80 million for a six- or seven-cent tax increase, generally.”
The majority of LJISD debt is under IFA. De los Santos went over the current GO Bond debt incurred by LJISD by issue since 1998, and said that the total principal outstanding left is $210,465,945.
“The state share for that [total] is about 70 percent,” de los Santos said. “The other 30 percent is being paid by your tax rate.”
In order to pay what is owed in their share of the debt, the district raised the tax rate by 10 cents (from 0.1410 to 0.2427) for 2020.
“As your debt goes away, your tax rate will go lower,” de los Santos said. “In 2023 your tax rate is going to go down from 25 cents to 21 cents. Again in 2026, you’re going to see your tax rate going down from 21 cents to 17 cents.”
De los Santos noted that as the rate goes down, some districts tend to try and pass more bond elections, which will only increase the debt before it has been repaid.
The current debt incurred through MTNs, which are approved by the board, is $45,941,791.
LJISD is mulling over the financing of 50 new school buses through a MTN sale at a rate of $5,043,000. De los Santos went over what it would mean for the district financially.
“On or after Nov. 15, we will come to the board and we will say ‘hey, you have $16,050,000 that can be refinanced right now,’ and we’ll show you how much money you can save by going through the refinancing process,” de los Santos said, noting they always give a net amount after expenses and the refund will go for Series 2010 and 2011 GO Refunding Bonds for interest savings.
He went over potential payment options and plans for a 10-year, 7-year and 5-year MTN.
Board members present at the meeting included Nereyda Cantu, Espie Ochoa, Mary Hernandez and Alex Cantu, along with Superintendent Dr. Gisela Saenz. Following the presentation, Alex Cantu asked de los Santos what his opinion was on the financial state of LJISD given the debt incurred, and if they could afford the buses at this point.
“I believe you have a substantial fund balance,” de los Santos said. “Mr. Treviño [Joel Treviño, Assistant Superintendent for Administration and Finance] needs to determine – and that comes in the budgeting process.”
“I would say financially you’re fairly healthy,” de los Santos added.
Alex Cantu then asked how the district fared in comparison to others in the Valley, and de los Santos brought up the state of the Edinburg, PSJA and McAllen districts.
“In terms of what you owe for bonded debt, for people that voted for the debt, it’s pretty average,” de los Santos said, adding that other districts have difficulty even passing bond elections. “[For MTNs], you’re probably average also. I’ll be before Edinburg tomorrow morning, they’re considering $40, $50 million maintenance tax notes.”
Espie Ochoa spoke on the need for upkeep in the district.
“We’ve come to a point where there is need,” Ochoa said. “We need buses, we need our students and bus drivers to be safe on the roads.”
If the board considers the purchase of 50 new buses, Estrada Hinojosa recommended they authorize self funding the purchase, pass a reimbursement resolution prepared by bond counsel (to reimburse the General Fund when the MTNs are issued and funded) and pass an order. Generally, notes will close and be funded about 60 days after board approval.
This article originally appeared in the Friday, Feb. 7, 2020 issue of the Progress Times.