With the school board election quickly coming May 6, many voters are trying to sort out the true financial state of the district.

There are three main factors that determine a district’s financial health: bond history and ratings (outstanding debt), operational efficiency and unfunded future liabilities.

Texas leads the nation in school debt; South Carolina is second. While certainly not the only debt that Texas has, public school bonds account for the largest debt in the state by far. From 2007-2013, Texans incurred a staggering $65 billion in principal bond debt. The Texas Public Policy Foundation says that known interest adds $42 billion to that amount, for a total amassed debt of $108 billion. Then, in 2014, Texans heaped $10 billion to that amount for a total of $75 billion in bond principal – before interest. Nearby Katy ISD voters approved the state’s largest 2014 bond at the mind-numbing amount of nearly $750 million. Districts around the state say the bonds are needed to replace aging facilities and for school security, but some are building more elaborate structures like fine arts centers, natatoriums and career tech centers.

So how does Humble ISD fare?

Bond history and ratings (outstanding debt)

Humble ISD voters approved bonds in 2002, 2005 and 2008. The 2005 bond provided the $71.7 million needed for the purchase of 67 acres and construction of Summer Creek High School.

 In 2008, voters approved a $245 million bond that included money for new campuses, funds for technology, campus improvements and administrative facilities. $4 million was also included for land purchase for a new middle school.

Funds for all 2002-2008 bonds have been allocated. $155 million of the 2008 bond fund has been used or earmarked for purchase of seven campus sites and construction of three new schools. Humble ISD Chief Financial Officer Mike Seale estimates that $5-$10 million will be available after all 2008 bond projects are completed, and any leftover money will be allocated to other projects, thereby reducing the amount needed in any future bond referendum.

Bond ratings are provided by three independent agencies as an indication of ability to pay principal and interest in a timely fashion. According to Seale, Humble ISD’s 2016 bond sale had a AAA rating; he says that only about five percent of Texas districts have ratings that high, and feels sure that the rating won’t be affected even if new bonds are issued.

The district also took advantage of historically low interest rates in selling and refinancing bonds from 2002-2008, saving taxpayers more than $100 million in future interest payments. 

Current trustees report that these savings will allow the district to keep the current property tax rate, which has remained at $1.52 per $100 valuation since the last bond measure in 2008.

Other factors also help the tax rate, like home appraised values and new home construction. Appraised values have risen significantly in the last few years, and the area has experienced a sharp rise in new home construction. Both result in significantly more total tax dollars available to fund district operations and capital expenditures, and that bigger tax pool has also contributed to keeping the rate flat. If a recession were to occur, the opposite would happen, resulting in upward pressure on the tax rate.

Operational efficiency

There are two pools of money that comprise the $1.52 rate: M&O, operating costs for the district ($1.17) and I&S, capital expenditures ($0.35).

As a district grows, the M&O rate should drop because the school district should become more efficient in its operations. Indeed, Humble ISD has gone from $1.50 in 2005 to today’s current rate of $1.17. Texas law ensures the I&S tax rate does not exceed $0.50. 

Seale said, “The state will not approve bond sales that would result in a debt service tax rate exceeding $0.50. The district’s current debt service tax rate is $0.35. Combine that with the fact that we are so aggressive in retiring outstanding debt, and I am comfortable with projecting that this district will not have any trouble staying below the $0.50 cap in the foreseeable future.”

Trustee Robert Sitton has stated the debt principal is $606 million, and said that while it looks like a large number, taxpayers “shouldn’t worry because 87 percent of the debt will be paid off after 15 years.” 

Sitton has spoken on several occasions and on social media comparing Humble ISD to a peer group of other fast-growth districts in the area.

“We are THE best,” said Sitton, who stated that Humble ISD has the lowest debt to taxable assessed value at 4.06 percent. Actually, Humble ISD ranks sixth out of 12 in that list, behind Aldine, Conroe, Katy, Fort Bend and Spring Branch.

Districts can be at or under the $0.50 cap and still have crushing debt. Keller ISD was at or below $0.50, but bonds passed in 2014 increased total taxpayer liability to over $1.4 billion in principal and interest – a debt of $42,000 per student, nearly three times the state average.

The Fast Growth School Coalition (FGSC) is a name synonymous with school district bonds. Humble ISD is a FGSC member; former superintendent Guy Sconzo is executive director and Keller ISD Superintendent Randy Reid is president. In Texas, FGSC opponents describe the organization as one to “raise your property taxes and eliminate existing borrowing limits.” Some Texas ISDs and FGSC members like Hutto, Leander and Liberty Hill have amassed massive debt.

Another way to look at operational efficiency is cost per student. Humble ISD is about 5 percent higher than the state average. From 2010 to 2016, the cost per student in Humble ISD has increased from $7, 854 to $8,851 at an annual growth rate of 2.1 percent. The state average for 2016 is around $8,500. Seale stated that in 2011, the state cut funding to all districts, so a large part of the subsequent increase since then was needed to recover from those cuts. However, the $8,851 cost per student reflects only operating cost. Annual debt service per student must be added to get a complete cost per student; for Humble ISD, that means adding approximately $1,309, for a total cost per student of $10,160.

District debt as of June 2016 is published in the Humble ISD Debt Transparency Report. Total district debt is nearly $900 million. Campaign literature of candidates like Robert Sitton shows a newer, lower 2017 number of $846 million, which reflects recent cost-saving measures, but the figures are not yet officially published on the district site. District rules cap debt level at seven percent of taxable assessed value (TAV). Using Sitton’s number for 2016 TAV of nearly $15 billion, the district’s debt cap is a little over $1 billion. Voter approval would be needed to change the district debt cap from seven to 10 percent, the amount of debt cap allowed by state law.  If approved, using 2016 TAV numbers, Humble ISD’s debt cap would be nearly $1.5 billion.

Position 5 candidate Cliff Crossett strongly disagrees with those who say the district is in good financial shape. 

In a March 26 candidate forum, Crossett said, “We are $900 million in debt, and for a district our size, that is excessive. Even worse, the board is talking about putting a bond out next year. Refinancing of the debt has been a stroke of luck because of the low interest rates. To burden the taxpayers of our district with excessive debt is inexcusable to me.”

Board members like Charles Cunningham told voters in the same March 26 candidate forum not to worry: “Who in here has no debt? How do we handle the debt? We’ve saved taxpayers over $100 million. This board has been able to manage the debt.”

Unfunded Liabilities

The district will likely need to call a new bond election in the next year. Outgoing Superintendent Guy Sconzo said in a May 2016 article, “Definitively, a 2018 bond referendum will be needed to open the doors of Elementary  No. 30 and High School  No. 7,” yet some current trustees say the bond might slip to 2019, if it’s even needed at all. In a bond election, a school district seeks voter permission to sell bonds. The bonds are sold to investors, paid for by tax revenues, and at maturity pay interest to the bond holders. In Texas, bonds can only be used to finance capital projects like land purchase, new school construction, and existing facility renovation. When a new school is built, many districts roll operating costs like buses and computer technology into the capital expenditures in order to keep M&O costs down; this is a tactic used by many Texas districts, and one that has contributed to the large debt numbers many ISDs are experiencing. It’s a financial problem because these assets are financed over 30 years, yet the lifespan of a bus or computer doesn’t last that long.

How much does the district need for a future bond call? The district says they don’t yet have the answer, despite some district statements that a bond could be needed as early as fall 2017. To determine the answer, the district commissioned a study; Sitton said in May 2016 that PBK Architects was hired to do a $300,000 “rooftop to flowerbeds” comprehensive facilities assessment to review every Humble ISD building. A similar study was done in 2012 at a cost of $155,660, but according to district spokesperson Jamie Mount, was a very limited study to identify ways in which older elementary schools could provide comparable learning environments to newer elementary campuses.

“It’s important that all students learn in outstanding facilities,” Mount said. The study also allowed the district to quickly build security vestibules at older schools after the Sandy Hook Elementary shooting in Connecticut. The current study assesses the physical condition of each building, including mechanical, electrical and plumbing systems, doors and windows, and all equipment. Most school districts do these assessments when anticipating a sizable future bond.

District patrons like Ted Mandel and Position 1 candidate Bob Rehak have complained at several school board meetings about the months of delay in producing the plan, originally due in November. At the time, Assistant Superintendent of Support Services Roger Brown said PBK Architects “has viewed, studied and assessed every facility in our district. We already know what new facilities we’ll need.” Yet the report’s release was delayed until January 2017, and is now delayed until this summer. The district says that the scope of information is massive since 52 facilities are being assessed, and that principals or responsible departments are taking the spring semester to review draft reports they’ve received and add crucial items; Mount cites an example of the police department’s need for additional parking as an example of an added item. Brown says that study findings and community feedback will be thoroughly assessed before calling for the bond election. Older schools might receive makeovers while others may be demolished and entirely rebuilt. Additionally, the report will prioritize buildings that need immediate attention versus buildings that can be addressed later. Out of the 52 facilities assessed, 23 of them are more than 30 years old. School districts typically demolish and replace structures at age 50; Humble ISD has seven. Rehak stated at the last meeting that he believes the board is ducking the bond issue discussion until after the upcoming school board election when they should be honestly discussing it now.

Both Cunningham and Seale have estimated the next bond referendum to be for $600 million, but the report is not complete and there are many variables like interest rates, construction costs and land prices, so the amount could be much higher than $600 million. Some have heard the next bond will go as high as $1 billion. Time will tell when the report is finally finished and released to the community, and discussions about an impending bond begin.

 

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Jacqueline Havelka
Author: Jacqueline HavelkaEmail: This email address is being protected from spambots. You need JavaScript enabled to view it.
I am a rocket scientist turned writer. I worked at Lockheed Martin-Johnson Space Center for many years managing experiments on the Space Station and Shuttle, and I now own my own firm, Inform Scientific, specializing in technical and medical writing and research program management. I am a contributing correspondent to The Tribune, a Kingwood resident for 12 years, and proud mom to two Aggie sons.