Election News

Bond Bell Ringing

by Eileen Schwartz

When Texas voters cast their ballots next month for one of the state's four leading gubernatorial candidates, they will also decide the fate of approximately $3.5 billion in bond programs on the local ballots of 52 independent school districts. Bonds that pass will finance new facilities, upgrades and repairs to public schools.

The $3.5 billion figure comes from the Municipal Advisory Council of Texas, a nonprofit organization based in Austin that supports the municipal bond industry. MAC figures show that seven districts have prepared bonds in excess of $200 million while four districts have bonds of more than $100 million.

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Funding for education has topped the agenda in the debates this fall among incumbent Gov. Rick Perry and his three chief rivals for the job of Texas governor-Democrat Chris Bell and independents Kinky Friedman and Carole Keeton Strayhorn.

The decades-old battle in the state over school finance reform intensified after the Texas Supreme Court ruled in 2004 that the state's school finance system, known as the "Robin Hood" initiative, was unconstitutional.

In November 2005 the court gave the state a June 2006 deadline to implement a new revenue source to lower school maintenance and operation taxes, reduce public school districts' dependence on school property tax and provide for local discretionary taxation. .

The 79th Texas Legislature complied with the ruling in May by passing a tax-reform package in a third and final special session called by Perry. Many politicos say the legislation resolves the state's school finance crisis. Others see it as nothing more than a means of getting out from under the court's order.

While the legislation didn't have a major effect on school bonds, "it did help remove the uncertainty that's been floating around for several years about how to fund schools," says Chris Huckabee, chief executive officer for Fort Worth-based Huckabee Inc., an architecture, engineering and program-management firm that offers bond planning and public relations to independent school districts.

"The focus was on the maintenance and operational side of the balance sheet not the capital improvement side."

He adds that the state did give some property tax relief that would offset local taxes. "We anticipate that the reduction in property tax might prompt voters to say yes [to bonds]."

The real impact on school bond referendums, however, is the change in allowable vote dates, says Huckabee. New state legislation required that, starting this year, school districts hold bond elections on the general election dates in May and November.

"While this might have sounded great in theory, the reality has been less than desirable," he says.

Conforming with the general election dates means that many voters will need to become acquainted with new polling sites because many school districts don't fall within city or county lines.

Another complication, Huckabee points out, is that most general election ballots are packed with propositions "leaving school bonds hidden well down on the ballot."

Huckabee adds that when bonds were voted on throughout the year, construction was spread more evenly throughout the year.

"Today bonds are sold in a tight market because they are voted on at the same time," he says. "Given the typical supply and demand theory, we have more bonds and fewer buyers, meaning interest rates are higher. Construction also gets grouped together, meaning more work floods the market at certain times with wider gaps in the frequency of new projects. The end result is higher bond interest rates and higher construction prices."

The first round of bonds under the new legislation was placed on the ballot in May.
Huckabee says his clients had a 100 percent pass rate, but the margin of victory wasn't as large as in past years.

Outside of Huckabee's client base, the May bond referendums saw mixed results "just as we have in the past," he says. "School districts that have a solid plan and do a good job of presenting the facts to their taxpayers normally come out on top."

For ENR's national coverage of the upcoming election, go to www.ENR.com.