Paradise 101 | Bonds and Overrides

Monday, January 24, 2022

In a conversation with Jill Barragan, assistant superintendent of Business Operations, we discussed the role of bonds and overrides in school districts. And, how these financial tools impact our students and staff. 

Jill, school finance is certainly complicated, can you help explain why public school districts in Arizona need to go out for voter-approved initiatives?

Yes, school finance is certainly as complicated as it sounds. During the past decade, school district budgets have been cut significantly in capital funds. Funding has been restored for capital, and we now receive automatic inflation of up to 2% for our primary operations fund; however, that doesn't keep up with the inflation we are currently seeing, nor does it help us to catch up from what we had been cut previously. We don't receive inflation on the capital formula, just operations. Furthermore, the School Facilities Board hasn't been funding a significant portion of districts' capital needs for nearly 15 years. A formula program was changed to a grant program with much less funding, and new school construction funding wasn't adjusted until this last legislative session.

Our formulas, which haven't been revised since 1980, are designed with minimum adequacy in mind. Unlike public school districts, public charters automatically have the value of voter initiatives embedded into their formula without a need to call for an election. In order for school districts to compete, they must pass local initiatives. The alternative would be to offer lower teacher pay, have higher class sizes, limit programs, and sacrifice facilities maintenance. 

So, since these bonds and overrides really keep a lot of things in place, when voters receive their ballots, what do they need to know? What's the difference between a bond and an override?

There are significant differences between a bond and an override. A bond allows district funding for capital expenditures. It's like a mortgage. It's a debt you finance over a long period of time to pay off big items like buses, a roof replacement, or the construction of a new building. 

An override increases the annual funding that districts have available to address ongoing needs. An M&O (Maintenance and Operation) Override will typically support teacher salaries, and a DAA (District Additional Assistance) Override would support short-term capital needs like technology devices and equipment for students and staff. If a district does not have support for any of the three initiatives, there is less funding available to address teacher compensation, class size, programs, and other items that are usually funded with the per-pupil formula. PVSchools uses its M&O Override to provide competitive salaries, special area classes, and safe and healthy school environments.

Definitely important expenses. How does a school district decide which projects they want to be approved?

Each school district has its own process, but PVSchools includes an assessment of facilities from our Operations Director and seeks feedback from a committee that includes various staff and community members. Once needs are prioritized, the total amount that the district will ask its voters for in a bond authorization is determined. In PVSchools, we are on a four-year cycle of putting together a capital plan and then asking our voters for authorization. Our voters have been extremely supportive of bonds over the last two decades. As a community member, it's important to understand that upkeep and updating of district property can help maintain and even raise the personal property values of property owners in the district.  

But, how does a bond or override affect residents' property taxes overall, and what factors into the overall cost (i.e., interest rates)? 

That's a great question! The amount of impact depends on numerous factors. As a starting point, the annual tax rate for an override or bond debt service is set based on the amount of the override or debt service for the year and the amount of total property value within the district. The amount of the override is limited by State statute and the specific authorizing election.
 
Once the tax rate for each of the items is set, the impact on individual taxpayers depends on the value of the taxpayer's property. Each tax rate is applied per $100 of limited assessed property value. While there is an impact for taxpayers associated with school district bond and override approvals, it doesn't necessarily mean the property tax rate will go up. Generally, additional property value in the district reduces the tax impact on each existing taxpayer.

It's important for residents to have the facts so they can make an informed decision at the polls. Obviously, if a bond or override passes, the district has access to the funding, but tell us what happens if it doesn't obtain the required votes. 

If a bond doesn't obtain the required votes, it is not approved, and the district does not have the ability to make the proposed capital improvements. When capital improvements aren't made to district property, it can have an effect on the property values within the district. 

If a DAA Override doesn't pass, in PVSchools, for example, we would not be able to provide updated instructional materials or district support vehicles. Because PVSchools already has an M&O Override in place, if the continuation of the override fails to pass, the district would have to review expenditures and determine which of the items listed in the voter pamphlet would longer be funded. This includes ensuring current academic programming remains in place, providing competitive salaries to retain and attract highly qualified teachers and staff, continuing instruction for technology, physical education, fine arts (such as music, art, drama, world language, and other electives), and promoting a safe and healthy school environment. However, expenses will need to be reduced to account for any decreased funding.