Frisco ISD to Decide on Adopting $775m Debt Initiative

Frisco ISD to Decide on Adopting $775m Debt Initiative

The Frisco Independent School District (FISD) early voting date has arrived on a $775 million package that Breitbart Texas has been following since the FISD board of trustees voted unanimously to move it forward. It is an important bond not only for its size, but because Frisco ISD has been the fastest growing school district in the nation over the past 20 years, according to the district’s website.

Frisco taxpayers are already committed to sizable sums of previous school bond debt. New debts incurred from a $775 million bond would heap a lot more onto the taxpayer’s plate. Voters are being asked to fund new elementary schools but there is a new problem emerging “Vote Yes” bond.

There are seven elementary schools missing in action in Frisco ISD. These are schools that were bought and paid for by FISD taxpayers in the previous 2003 and 2006 bond initiatives–separate from the eight new elementary schools the district is now asking taxpayers to foot in this 2014 bond. 

In 2003, Frisco had 16 existing elementary schools.  Voters approved a $498 million bond package to build, among other things, 18 additional elementary schools which were to net FISD a total of 34 elementary schools.

In 2006, voters approved a $798 million headline-grabbing bond, of which nearly $175 million was earmarked to build 10 more elementary schools, according to the FISD Bond Plan 2006 (May 13, 2006). This was to bring the elementary school total up to 44. However, there are only 33 operational elementary schools in FISD today.

In fairness, previous bond measures 2003 and 2006 accounted for two more elementary schools, both of which will open in August 2015. FISD is also projecting two schools from the 2006 bond to break ground in 2014-2015 school year. This will bring that elementary schoolhouse count up to 37. Factoring in these four schools, that brings the differential down to 7 outstanding schools.

In the $775 million 2014 bond package, $169 million has been set aside for eight additional new elementary schools. According to the FISD 2014 Bond Proposal presentation to the Board of Trustees, FISD highlighted a total number of elementary schools at 45, across the three bond packages (2003, 2006, and 2014). 

However, old-fashioned math adds up differently. Using the same FISD presentation figures, the actual original 16 elementary schools plus 18 from the 2003 bond, 10 from the 2006 bond, and the eight proposed in 2014 bond actually equal 52 elementary schools, not the 45 that the district shows in the presentation package. Again, it’s a difference of seven schools. Where are they?

The Responsible Spending Coalition of Texas (RSC) PAC is asking that question too. They are a grassroots watchdog group whose claimed mission is to promote fiscal responsibility, debt management, financial transparency and accountability within ISD’s and city government.

In an exclusive interview with Breitbart Texas, RSC’s Tom Fabry said, “The unfortunate part of this is that the overcrowding that exists in the elementary schools today, was created, in part, by FISD decisions not to build the schools with money that taxpayers already entrusted to them.”

A Frisco resident, Fabry is not against school bonds nor is the Responsible Spending Coalition against them either. The issue is this particular bond. The group is letting taxpayers know that it is “okay to vote no” on the May 10 bond measure and to ask FISD to come back to taxpayers with a more fiscally-responsible bond package, one that is in line with Frisco’s actual needs and values. 

Fabry told Breitbart Texas that there is a need for more schools in FISD. The Responsible Spending Coalition would like to see a bond measure that does not put Frisco property taxpayers into overwhelming debt. They would also like to see a measure that is transparent so voters understand what the actual costs in a bond measure are.

“In this case, a re-do is the right thing to do,” added Fabry, who is concerned that the overcrowding crisis is now being used as a trigger to “compel people to make a fiscally irresponsible decision by voting for this bond.”

Fabry is no stranger to grassroots number crunching. Previously, he was responsible for the white paper that led to a full audit on CSCOPE, which is currently underway by the Texas State Auditor.

The bond package, however, is an issue because the numbers do not add up on elementary schools the voters already approved. In another example of fuzzy numbers, growth projections provided in the FISD 2014 bond package show a total capacity projection of 52,673 desks by 2015 for overall district K-12 enrollment. 

However, simple multiplication nets different results. According to Fabry, if you take the actual number of schools projected for 2015 and multiply their stated enrollment capacity per school, by type, that number is 58,920 for those 59 schools. He added, “That’s a discrepancy of 6,247 desks.”

In Breitbart Texas’ last report on the 2014 bond package, Texas Public Policy Foundation (TPPF) broke down the dollars for Frisco taxpayers in the study, “A Profile in Runaway Debt: Frisco ISD’s $775 Million Bond Proposal.” TPPF showed the actual debt to student ratio over outstanding bonds and the findings were dismal. 

However, far more alarming, TPPF found that FISD was already overextended on an outstanding $2.6 billion in principal and interest debt from past bonds. The report stated this “equates to nearly $56,000 of debt per enrolled student.”

TPPF warned that if the 2014 bond is approved, the new debt level would be more than twice that of any of the surrounding school districts across two counties, sourcing comparable school district statistics across the neighboring Collin and Denton counties.  

TPPF pointed out that on a 30-year bond at 4 percent interest, FISD taxpayers would be on the hook for $556 million worth of interest which factored in with principle costs, would bring the amount owed by Frisco taxpayers for just the 2014 bond to $1.33 billion.

Another issue at play is the way FISD structured its bond measures, diverting funds for other projects–such that voters have may not have approved or even voted on. Case in point: the 2006 FISD package made no reference or funding for the Frisco ISD administration center, a stunning piece of architecture with interior mahogany walls that cost Frisco taxpayers $27 million. Yet, it was built.

It was in a town hall meeting that FISD Superintendent Jeremy Lyon mentioned that the school district administration center was acquired with a “16 or 17 year interest free bond” as shown in exclusive video obtained by Breitbart Texas.

The Private Placement Memorandum dated June 24, 2010 actually shows that this interest-free loan came out of the 2009 federal stimulus program  as a subsidy in the Qualified School Construction Bonds Program.  Page 9 of the memo’s “Federal Tax Credit” section reads: “the Bonds are a new security Authorized by the American Recovery and Reinvestment Tax Act of 2009 (the “Recovery Act”). 

The document also showed that the bonds were sold at a 5.36 percent interest rate with tax credits going to an Oklahoma bank who handled the interest on this bond, according to page 28 of the memorandum which named BOSC, Inc., a subsidiary of BOK Financial Corp. as the “placement agent.”  BOK Financial is based in Tulsa, OK.

However, Frisco taxpayers are not the recipients of any tax credits or stimulus fund money perks. Instead they are liable for all the borrowed cash footing the bill. These were federally sold treasury bonds that were added to an already $17-plus trillion national federal debt. 

“For the taxpayers of  Frisco, that also included the liability of interest and liability on that debt, which meant that Frisco taxpayers paid three times on the bond itself plus the federal bond and then on the interest on the federal bond,” Fabry told Breitbart Texas.

Another component on the financial side is that FISD’s legal limit or “debt service cap” on property taxes is $0.50 on the dollar.   It cannot go any higher but the 2014 bond will stretch homeowners to the maximum limit.

FISD Superintendent of Schools Dr. Jeremy Lyon explained this to an audience at the Frisco Area Republican Club on February 6, 2014. 

In audio obtained by Breitbart Texas, Lyon said, “The State of Texas has this deal where when school districts like Frisco get at $0.50 of bond debt they can go no higher. And so we’ve got kind of this automatic governor in place, which is, um, really problematic for places like Frisco, because what do you do when you get to $0.50 and the kids still keep coming?”

Lyon then cited ways districts have compensated growth.  He said, “And you know what other districts have done, like Leander, is that’s what leads to gimmicky bond debt structure.  Instead of 30 year notes, you write 40 year notes.”

He then served up yet another option, “And you can do interest-only and balloon payments and all of that and it starts to get really goofy.”

Lyon applauded Frisco for taking a different path. He said, “Frisco has done a brilliant job of not going down that pathway of, uh, CABS, the creative way you structure your debt. Ours is very straightforward.”

Maybe not. FISD has financed some of its school bonds with Capital Appreciation Bonds (CABs), which do not have regular payments–interest and principal accrue and compound until maturity when a “balloon payment” is due.

Based on the report “Texas Permanent School Fund Bond Guarantee Program, Committee of School Finance/Permanent School Fund, September 2013,” compiled by Southwest Securities, FISD’s Bond advisor, there is a stark contrast in costs to the taxpayer between a traditional bond and Frisco’s existing $20.4 million in CABs (as of October 2013), according to the Responsible Spending Coalition.

Where a traditional bond with interest may yield an ultimate end of term payment of $30 million, CABs kick the can down the road with exponential interest that accrues up to, in this case, $177 million in total payments. Because of their big balloon payments overinflated by years of constantly accruing interest, CABs are a risky way to fund growth.

In the end, the numbers do not add up. Elementary schools were never built with 2003 and 2006 approved funds. Now the district is in a bind and there is a classroom crunch. In the 2014 bond package, FISD is asking its voters to approve eight more schools. Seven are missing and already paid for by taxpayers.  

Perhaps, as Fabry suggested, had the money from those previous bonds been spent on what the taxpayers thought they were voting on, there would be no need for such a huge bond now to fund additional elementary schools. It risks taking FISD down the dangerous path of debt, something that should concern every FISD voter between now and May 10.

2010 QSCB Private Placement FISD-1 by BreitbartTexas

QSCB Application by BreitbartTexas

SWS Bond Program Over View Sept 2013 by BreitbartTexas

2014 Bond Presentation $758m January2014 by BreitbartTexas

Follow Merrill Hope on Twitter @OutOfTheBoxMom


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