Have you ever seen a school bond issue on your local ballot, but not been sure exactly what a bond issue really is? This post will explain school bond issues and the tax levies used to repay them. We’ll also introduce a topic that we’ll go into great detail on later this week: operating levies.
School Bond Issues: The General Obligation Bond
In most cases, school bond issues are placed on the ballot when a district needs to make capital (i.e. construction) improvements that aren’t funded elsewhere in the school’s budget.
In most cases, school bonds are General Obligation, or GO, Bonds. GO bonds are municipal bonds used to fund projects, like schools, that don’t generate enough revenue to pay for themselves.
According to Investopedia.com, the GO bond is, “a municipal bond backed by the credit and ‘taxing power’ of the issuing jurisdiction rather than the revenue from a given project.” (Source)
Schools don’t need to use assets as collateral for capital projects in the same way that traditional construction projects would. The full faith and credit of voters backs project costs. And unlike a for-profit construction project — for example, a new shopping center — schools don’t need to generate enough revenue to cover the cost of capital projects. That’s where tax levies come into play.
Full Faith and Credit of the Voters
Tax levies are often pledged in order to meet the debt service requirements of school bonds. Rather than requiring the school district to generate a substantial enough profit to cover its construction investments, local voters’ personal property taxes go up. This tax increase allows the community to pay back bondholders for the cost of the local school’s capital project. (Source, Source, Source)
The Missouri Auditor’s Office explains:
“When authorized by state law, Missouri’s local governments, such as school districts and municipalities, may borrow money to finance capital and other projects by issuing general obligation (GO) bonds, which are guaranteed by the ‘full faith and credit’ of the issuer since the entity can levy a general tax to make GO bond repayments.” (Source)
It’s important to note that a debt services tax levy for GO bond repayment isn’t the same thing as an operating tax levy. Operating tax levies fund a school district’s operating expenses like utilities and salaries. Springfield Public Schools sums up the difference between a bond and an operating levy on its website:
“A school district requests a bond issue when it needs to make capital improvements such as building or renovating schools. A tax levy funds operating expenses like salaries, utilities and textbooks. State law is very specific that money from a bond issue may only be used for capital improvements and not to fund a district’s operating budget.” (Source)
Learn more: What is an Operating Levy?
Bonds Must Fulfill Their Stated Purpose
There’s one final aspect of GO bonds that’s important to understand: Bonds are for specific uses, only. The money raised through the bond can be used for the purpose stated on the ballot, and for nothing else. If you see a school bond issue on your local ballot, you can rest assured that that bond issue will cover exactly what the ballot says, and nothing else.
You can see a full list of bonds registered with the Missouri State Auditor’s Office here.
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Posted on Thu, April 2, 2015
by MOParent filed under