Texas school bond guarantee program's projected capacity drops to $410 million

A top-rated Texas program that guarantees public school bonds is running extremely low on capacity, with just a projected $410 million available at the end of November.

The program is not expected to shut down in the coming months, although some districts may not get the guarantee for their debt, according to the Texas Education Agency (TEA).  

The Texas Permanent School Fund program is capped at $117.32 billion under federal law and bestows triple-A ratings on school bonds, which are popular with investors due to their liquidity. 

Projected available capacity has been falling. It was just $653 million at the end of October, down from $3.52 billion on Sept. 30.

Meanwhile, school districts are flush with bond authorizations. About $12.5 billion of school bonds on Nov. 8 ballots received voter approval, according to election results posted on the Texas Bond Review Board's website. In the May 7 elections, $10.4 billion of school debt passed, S&P Global Ratings reported in August.

The TEA said it expects to add capacity on a month-to-month basis as guaranteed bonds mature or are refunded and from districts that issue less than the par amount of debt approved under the program.

The program is not going to shut down and there is no timetable to do so at this point, according to the TEA, which added the program will continue operating with limited capacity.

Districts with the lowest property wealth per average daily attendance are given top priority, it added. Applications from wealthy districts and those with bond sales exceeding the available capacity face denial, although all can reapply on a monthly basis.

With Texas school districts needing to accommodate a growing student population or fix aging infrastructure, state officials are looking to Congress for help to increase or eliminate the program's cap. 

A measure introduced in September by U.S. Rep. Lloyd Doggett, D-Texas, to permanently remove the Internal Revenue Service limit stalled. 

"With no agreement to include tax provisions in December's omnibus funding legislation, we could not secure inclusion of the Keeping Texas School Construction Costs Down Act (H.R. 9044)," Doggett said in a statement. "I am reintroducing this bipartisan legislation to guarantee cost-effective financing of school construction costs in Texas." 

The bond guarantee program last reached capacity in 2009, forcing the TEA to stop accepting applications. It reopened in early 2010 after the IRS in December 2009 increased the limit.

In the event of a default, which has never happened in the history of the program, bondholders are paid by the permanent school fund and that money is then taken out of a district's next state aid payment.