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Develop a Plan School districts usually hire an architectural or engineering consulting firm to put together a district master plan and/or itemize needed improvements. School boards prioritize their needs and usually solicit community input before settling on a bond amount and intended use.
Ask for Money School boards must approve ballot language by early September to have theirbond issue appear on the November ballot.
Pass the Bond The issue committee often runs a campaign to get the bond passed. Usually, those committees spend very little compared to candidates for elected office. The committees stress the positive impacts the bond issue will have on the school district and the community.
Accept Election Results A formality after a bond election, the local school board must officially accept election results and begin work to ready the bonds for sale.
Sell Yourself Just like a prospective homebuyer looking to take out a mortgage, school districts must put together an exhaustive package of information so potential investors know what they’re getting into. This information can also be used by a credit rating agency, such as Moody’s, to rate the bonds.
Sell the Bonds Municipal bonds are often sold in $5,000 increments. Often, about 20-30 institutional investors, such as banks or mutual funds, buy up these bonds. Today, municipal bonds offer a slightly stronger return on investment than other investments, generally, and there are some tax advantages. Individual investors usually fall into one of two categories: “Buy and hold” investors might have a child going to college in 10 years, so they’ll purchase bonds from a school district that are supposed to be fully repaid (with interest) after 10 years. “Traders” go in and out of the bond market often to take advantage of pricing fluctuations and make fast cash.
Put in Work School districts can immediately start work on capital improvement projects after selling their bonds. Sometimes, districts will do a split-sale, where they sell a certain number of bonds at one time and the other portion at a later date. Sales can be split multiple times for numerous reasons, including spreading out the work over the course of a few years.
Pay the Bills Twice per year, the school district must pay down portions of its newly acquired debt. The district pays a sort of middleman called a paying agent, which then distributes that money to potentially dozens of investors. The largest paying agent is the New York City-based Depository Trust Company. The district pays down its debt by collecting more property taxes from voters, one of the stipulations voters agreed to when they voted “Yes” on the bond issue.
Dot the I’s and Cross the T’s Districts with outstanding bond debt must file an annual report called a Continuing Disclosure Agreement. That report is filed with the Municipal Securities Rulemaking Board, and includes much of the same information compiled before the sale of the bonds. The information is publicly available and is intended to provide transparency to investors. Those investors may not like the information on this annual disclosure, but their only recourse is to sell the bonds to a different investor.
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