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Schools Bonds

            School districts have an assessed property value.  That value is some legislated percentage of the actual value of the property in the district.  In Missouri, for instance, the state legislature has decided that the taxable value is 20% of the market value of a piece of property.  So, if there were $100,000,000.00 worth of property in a Missouri school district, its taxable value would be $2,000,000.00   Or, if you owned a home worth $1,000,000.00, you would only pay taxes on $200,000.00. In Arizona, the taxable value is 10% of market value, so you would pay taxes on only $100,000.00 of the actual $1,000,000.00 value.  (You need to add into this equation that assessors are elected, so they don't always have the technical skills they need for the job, and that property is only reassessed sporadically -- typically every 10 years or so -- so assessment is often out of synchronization with actual market value because real estate values seldom remain the same from year to year.)

            School taxes (the school tax rates) within a particular district are set by the voters in the district -- this stuff is done by popular ballot -- at some percentage of the assessed valuation, though most states do set a minimum for school taxes.  In Missouri, for instance, there is a Legislature mandated minimum of $2.75 per $100.00 of assessed value.  In the Tucson area, school taxes average about 8% of assessed valuation.  (Some run as high as 11%; some as low as 5.5%.  It's whatever the voters decide on.)

            That's the regular school taxes.  Bonds are in addition to that.

            First of all, as a voter in a district, you vote on every bond separately from every other question on the ballot.

            Second, bonds are for specific money uses.  For instance, Sunnyside District in Tucson passed a $5,000,000.00 bond a couple of years ago to put computers in all schools and connect them to the internet.  Tha'’s all that money can be used for.  Bonds are usually only issued for capital needs -- new equipment, new classroom and administration buildings, parking lots, football fields, swimming pools, etc.  -- but they can be issued for other purposes, such as teacher raises.

            School bonds are like any other kinds of bonds:  they are promissory notes.  When Sunnyside issued the bonds mentioned above, they went through brokerage houses, which sell them to investors.  So, in other words, bonds are a way of borrowing money.  How much a district can borrow this way depends on two things.  First, the legislature sets a limit, based on the assessed value of the taxable property in the district.  This is usually something like 10%.  So, if a district has, say, $100,000,000.00 in assessed property value, it could borrow up to $10,000,000.00.  Second, the voters have to vote for the bonds on a popular ballot.  If the majority of the voters in the district vote no, then the schools can't issue the bonds.

            Bonds are interest-earning.  They aren't particularly risky financially, so there is usually a moderate interest rate on them, compared to other investments.  If I buy, say $1,000.00 worth of Sunnyside School District bonds, I can probably expect to earn 6 to 6.5% interest on my money.  But, that also means that the voters/property owners in the district have to pay that interest.

            Bonds are paid off through property taxes, so when I vote for a bond, I'm voting for higher taxes on my property.  (Bonds are listed separately on a tax statement.  One line will be school taxes, which is the regulartax mentioned above.  Each bond will be an additional line -- actually two additional lines, as there is always a "bond service" cost that, for some reason, is listed separately.)  A yes vote for a bond says, "I think whatever this bond is for is important enough that I'm willing to pay additional school taxes for a specified period of time in order to provide it to the schools in my district."  That's the same way we pay for most municipal facilities, like sewage treatment plants, water systems, street lights, sidewalks, streets, etc.

            So, is it important to understand bonds?  Yes.  When you go to the polls to vote, it's important to actually have studied the bond issues so you can decide whether the thing they are for is worth the cost to you.

            I'd also point out to you that you don't have to be a home-owner to pay property taxes (though a lot of people think renters don't pay them!).  When you rent an apartment, part of what you pay in rent goes to pay the owner's property taxes.  When you buy a product produced by a factory in your district, part of what you're charged for it goes to pay the producer's property taxes as well.  When you buy a hamburger in a MacDonald's in your school district, part of what you pay for the burger goes to pay the owner's property taxes.  In other words, you're paying the taxes; it's just a second-hand transaction.  Thus, it's rather important to understand not only regular property taxes, but also bonds.