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If my school district says it wants to extend an existing bond and not increase the tax rate and the assessed value of my home never increases/decreases(hypothetical), will my taxes stay the same?

If the assessed home value increases, is the school district paying down the bond faster? Or only taking a fixed amount according to a repayment schedule?

4

If my school district says it wants to extend an existing bond and not increase the tax rate and the assessed value of my home never increases/decreases(hypothetical), will my taxes stay the same?

If you refinance your mortgage, does your mortgage payment have to go up? No.

Refinancing a bond works the same way.

If the assessed home value increases,

Your home value might increase while others decrease. If the county-wide valuation increases, the school board will get more money.

is the school district paying down the bond faster?

Is there a property tax "slice" dedicated to that bond? If so, they might pay it off faster, or they might accumulate the extra money in a rainy day fund in case property tax receipts drop in the future.

You'll have to ask them.

Or only taking a fixed amount according to a repayment schedule?

In my county, each dedicated bit of the property tax pie is a a percentage. When property taxes go up, the pie gets bigger.

YMMV but I doubt it. In any case, your county should have a web site explaining all this.

  • Obviously it would be almost impossible to have taxes collected equal the bond payment. What would this spillover account be called? Is it a sort of escrow? – user1594257 Mar 8 at 18:21
  • @user1594257 "Is it a sort of escrow?" It has to be, if that percentage of your property tax bill is dedicated to the bond. What the GASB (Governmental Accounting Standards Board) term is, though, I don't know. – RonJohn Mar 8 at 18:54
  • In my context, the school district is asking voters to extend a 20 year $90M bond and add another 6 years and $100M on to it. They are pledging to keep the specific bond tax rate fixed at it's current level. They are claiming they can pay the bond off even if property value increases remain at zero. So the way they can accomplish this is by using all the money sitting in this escrow account? – user1594257 Mar 9 at 0:59
  • @user1594257 could yourefinance a mortgage, while increasing the size while maintaining your current payments? I bet you could if you extended the length of the mortgage. That's what the county is doing. – RonJohn Mar 9 at 1:34
  • That makes sense to a point. In this case it's more than doubling the original amount borrowed and only adding 6 years? – user1594257 Mar 9 at 15:40
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If the assessed home value increases, is the school district paying down the bond faster?

Bonds are different than loans. With bonds, you don't generally have the option to "pay them down faster" (unlike, say, a loan or line of credit). The investors that buy the bonds expect regular, consistent payments and don't like it when they get paid off early (that means they get less interest going forward). Bonds can be callable, meaning the issuer may have the option to "buy back" the bond, which essentially is paying off the entire debt plus some compensation for the early repayment, but they can't just make extra payments and retire the debt early.

  • Indeed, to pay off a bond, you generally would also have to pay the interest you would have paid out in addition to the principal. What we call a bond is really just another form of contract, and like any contract breaking the terms of the contract has financial penalties - as an investor, I'd avoid a firm that has a history of pulling a fast one on past investors. – corsiKa Mar 8 at 19:42
  • Bonds are a type of loan. A loan can be fully callable (overpay as much as you want, and you don't have to pay interest on anything other than the outstanding principal), partially callable (you can overpay as you want, but there's a prepayment penalty), or not callable at all. – Acccumulation Mar 8 at 22:28
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Bonds and tax rates are separate issues, although sometimes they will be combined into a single bill/initiative; that is, sometimes a bill will be proposed along with a tax to pay for it. But a bond, by itself, doesn't affect tax rates; unless there's an additional tax specifically authorized, the district simply has to find money in their existing funds to pay the interest.

Conversely, taxes don't generally affect bond repayment. Paying off a bond isn't like paying off a credit card, where you can send in as much money as you want and have it taken off the principal. Unless there are specific provisions in the bond, the issuer has to keep paying interest on the original amount. Sometimes, however, the issuer of a bond will find themselves with more money than they were expecting, and will buy back the bonds. Unless the bond has provisions forcing the holder of the bond to let the issuer buy the bond back, the issuer has to offer enough money to get the holder of the bonds to voluntarily sell. If interest rates have fallen, then the issuer will probably have to pay more for the bond than they received when they issued it. Another way that additional funds can decrease outstanding bonds is if the issuer has rolling bond issues. This is where instead of selling one long-term bond, the issuer will sell several short term bonds one after another, each one funding the redemption of the previous. Doing this allows the issuer to simply not issue the next bond, if their funds have increased to the point that they can afford to pay off the previous bond without issuing another.

protected by JoeTaxpayer Mar 9 at 6:28

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