We received a response from the financial advisors:
We believe this statement to be false.
Yes, it would be the case if the district issued debt all at once for the $892.2 million. However, the estimate does not take into account the amount of debt that is retired annually by the district each year. The district uses a layering approach that allows the district to manage its debt load based on its cashflow needs.
For the purposes of estimating the tax impact, the district assumed an aggressive schedule for bond issuance of 5 years with a maximum projected outstanding debt load of $1.5 billion in 2018. Considering the history of the 2004 and 2008 bond authorization, the time could be extended over 7-8 years, which would impact the projected maximum outstanding debt that the district would experience.
Regards y gracias!
Media Relations Coordinator, AISD
From: "Selby, Gardner (CMG-Austin)" <firstname.lastname@example.org>
To: Leo Lopez
Date: 05/02/2013 10:57 AM
Subject: What we just discussed
Thanks for calling. The bolded material below is from the email I fielded today. The unbolded typing reflects my notes from our visit by phone a few minutes ago.
Upshot: The district says the debt load will double, but not until 2018. Is that correct?
(Selby’s notes below)
We believe this statement to be false.
Yes, it would be the case if the district issued debt all at once for the $892.2 million.
However, the estimate does not take into account the amount of debt that is retired annually by the district each year. LL: We’re paying about $95 m a yr in debt service, principal plus interest. We have a commercial paper program; a good bond rating; we’re able to issue short-term debt as the need arises; if constr mgt needs $20 m, we go ahead an issue $20 m in paper, and once we get to a certain amount, $100 m or $150 m, we roll that into long-term debt.
This summer, not going to issue $892m and put it in bank.
As construct sched dictates, we issue short-term debt, saves taxpayers money, pay as you go. Once it’s big enough, issue long-term debt (sell bonds). Right now, we have around $70 m to $80 m in commercial paper. If the bond package passes, still have outstanding authorizations from 2004 and 2008 issues, maybe in August or so, would go ahead and issue bonds and go back to zero on commercial paper. Longterm debt gets rolled into annual debt service payments.
On our finance web site, will send the link.
(Commercial paper approach for how long?) I DK.
Next bond payment: $46.6 m principal, $30.2 m interest, August 2013 debt payment, on a schedule, big one is once a year. To be repaid. That is just the August payment. (Are you defining debt load as what you repay in a year?) No. (This is not the commercial paper?) No.
(What is the equation?)
(Life of bonds?)
(Agree with Bond Review Board figures? Why not?) LL:
The district uses a layering approach that allows the district to manage its debt load based on its cash-flow needs.
For the purposes of estimating the tax impact, the district assumed an aggressive schedule for bond issuance of 5 years--LL: (Which bonds?) Just to the $892 m (Bonds sold withiin five yrs?) Right. It’s what drives 3.5 penny increase in tax rate... might not even hit that, up to 3.5 pennies.
with a maximum projected outstanding debt load of $1.5 billion in 2018. LL: (How do you get to that figure, other possibilities?) We do pay off principal and interest (part of layering); it’s all rolled in there; also short-term commercial paper; for this yr we paid approx $17 m in Feb, plus the $ in Aug 13; instead of a monthly payment, twice a yr; our fy like the st fy. Includes comm paper rolled into bonds. We deal with comm paper in short term. It’s like a credit card with a really really good rate, interest rate of about 0.18 percent, getting currently. Saves taxpayers millions.
Considering the history of the 2004 and 2008 bond authorization, the time could be extended over 7-8 years, which would impact the projected maximum outstanding debt that the district would experience. LL: (Instead of five yrs, it cud be 7-8 yrs?) Yes, driven by construction mgt, speed of projects and all of that. We’re not going to go and issue bonds when we don’t need the money. (How much of the ‘04 and ‘08 is left over? But is that relevant to whether the debt load doubles?) Second q first; the fact that we built in those issuances over the next five years in addition to the $892 m in our estimates. When we went to the taxpayers, 3.5 cents increase; whatever is left over from the 04 and 08 is presumed to be covered by existing debt tax rate; our debt will incr and our d service payments will increase.
(If the debt isn’t doubling, how much is the debt load going to increase and over what t pd?) $1.5 b in 2018, (compared to what, now?) $750 m pretend. (Doesn’t double for five years?) Maybe.
W. Gardner Selby
(Reply from Leo Lopez)
12:08 pm, May 2, 2013
Corrections and Additions:
1. We have $88.3 million in outstanding Commercial Paper (CP).
2. The CP Program has been in place since 2005.
3. Debt Load would be defined as outstanding Principal.
4. Average life of bonds is approximately 25 years.
5. Do not have sufficient time to make a meaningful observation about data presented on the BRB website.
6. Re: 5 year aggressive schedule for bond issuance (which bonds?): This would include the $892 million + $242 million in prior authorizations from 2004 & 2008.
7. The 2004 and 2008 prior authorizations represent $242 million, and issuance of those bonds are very relevant to whether the debt load doubles from $750 million to $1.5 billion in 2018.
8. In general we agree with the statement that the debt load would not double, but if it did, that would not occur until 2018, However, it is fair to say that there are a lot of events that have to transpire in order for the 5 year issuance schedule to occur, and there are lot of assumptions about construction spending, property value growth, and facilities needs built into the "peak debt" year of 2018. Austin ISD may never see $1.5 billion in outstanding principal all at once, due to construction delays, defeasance (early payoff) of existing bonds, shifts in enrollment, etc..
Executive Director of Finance | Austin ISD