SChool Construction FInancing
Capital Bonds
Just like at home you may decide you need to build a new garage, or want to renovate the kitchen. The question is how to pay for it. You could pay cash out of savings, or you could take out some sort of loan.
School districts face the same questions and have the same options. They may want a new school or need to renovate an existing building.
A very common way a school district may borrow money is to issue a bond which works like a loan and ask tax payers for a Bond Levy, or an increase in property taxes. The increased amount of taxes pays back lenders or bond holders and the interest on the loan.
The State has to approve most of these levy requests, especially ones the State provides matching dollars or contributes. A bank or a financial institution will sell and administer the bond.
The basic steps:
A school district gets consent from voters to raise taxes to pay for a loan or a bond.
A financial institution sells the bonds, another name for an IOU, and gives the money to the school district.
The tax money pays back the bond and the interest over several years to the bondholders.
Bonds & Levies | What is the difference?
An Operating Levy is used for day to day expenses or for repairs and maintenance or equipment.
Capital Bonds are to build something new, replace something old, or demolish something unwanted.
Source: NWESD, January 30, 2014
Source: NWESD, November 22, 2013
Additional Resources
A video on how and why municipal bonds are issued. Prepared by the Municipal Securities Rules Board. Click on the image or go to www.msrb.org.
From Cuyahoga County Treasurer website, explanation of school funding and definitions to key terms. http://treasurer.cuyahogacounty.us/en-us/funding-schools.aspx
Learningmarkets.com video on what are bond markets and how do they work
