During the past election cycle, my local school district put up signs, signs and more signs encouraging us to vote YES on a referendum to issue a new municipal bond for infrastructure improvements in the school district.
Most people either don’t care or don’t understand just how this process works. Not this guy. I got interested and did a deep dive into how the whole thing plays out. The school’s viewpoint, Wall Street’s viewpoint, a Parent’s viewpoint. I figured it all out. Just call me….
The Pitch
For the 2024 election, the County Schoolboard circulated a nifty PowerPoint slide deck (somethings never change) outlining their plan for school improvements.
Their plea was simple: The district is growing fast; we’re going to need a new school!
They want to raise exactly $39,441,428 by selling bonds to build one new school in the district and to start planning the build of a 2nd school
Starting in 2026, the district will start making annual payments of $4,077,755 to service the debt payments
Those annual payments will be made by increasing property taxes by $8.00 per $100,000 on your home’s listed appraisal value. E.G. a $500,000 home would see taxes go up by $40 per year.
Simple enough right?
Bond referendums are actually a pretty standard process for municipalities. A previous bond was voted on and issued in 2022 and one before that in 2018. The municipal bond market as a whole was over $4.1 Trillion in 2023 and is considered it’s own asset class for its unique provisions and structure.
What’s a Muni Bond Anyway?
A Municipal Bond is issued by a local government to finance the needs of a community. There are 2 types of municipal bonds:
Revenue Bonds -debt instruments issued and backed by the cashflow generated from the infrastructure it’s used to build. Think toll roads, tolls bridges, or stadiums that generate income from concerts and sporting events.
General Obligation Bonds - debt instrument that state and local governments use to fund public works projects, such as parks and schools, paid for by levying taxes on the community.
For the buyer of the bond, the best advantage is the tax exempt status on the coupon payments received by the owner of the bond. The size of the coupon payment and the risks of these bonds vary but generally the credit rating of the municipality determine the quality and keeps interest rates competitive with other options like corporate bonds or federal treasury bonds.
You can see more info on fixed Income bonds here -
Electronic Municipal Market Access (EMMA) - Provided by the Municipal Securities Rulemaking Board (MSRB), EMMA is one of the most comprehensive sources for real-time data on municipal bonds. You can find active bonds, disclosures, and price histories here: EMMA Website.
Bloomberg Terminal - Bloomberg provides in-depth information on active municipal bonds, including yields, credit ratings, and pricing.
FINRA's Market Data Center - FINRA provides bond information including yields and activity for municipal securities. You can filter by bond type to see municipal bonds specifically: FINRA Market Data.
Assuming the referendum passes,(it did!) the school district gets the OK to issue bonds for the project they pitched. They will reach out to their friendly neighborhood Investment Banker to start the paperwork and underwriting process. Before we investigate those mechanics, next week- we’ll talk about the parent/citizens’ viewpoint when the school district tries to issue new municipal bonds.
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Thoughts? Questions? Comments?
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