The tax-relief industry loves to make IRS problems sound impossible without them. They're not. I'm Darrin Mish. I've been representing taxpayers before the IRS for 32 years. Let me explain how this actually works.<\/p>\n
Since 1983, schools in Texas could borrow out of the state’s Permanent School Fund to pay for various costs like repairs and renovations of their facilities and land purchases. This Fund has been financed by voter-approved bonds supported by the property tax. With this arrangement in place, school districts across the state of Texas saved an estimated $100 million a year in reduced interest rates and insurance premiums.<\/p>\n
But there was a condition to it. The Fund could not back a debt more than two and a half times its own size. Problems arose when the value of the bonds declined due to the overall bearish sentiments of the stock market. This in turn shrank the size of the Fund. Consequently, some districts in Texas have restricted the amount of bonds they issued and sold because of the increased cost of borrowing without the guarantee from the Fund. As such, the schools in Texas could not borrow further as the bond guarantee program was shut down.<\/p>\n
For the last 2 years, Texas Governor Rick Perry appealed to the government to raise the limit the Fund could guarantee. His basis of appeal was that a larger guarantee would ultimately save Texas taxpayers money and inject much needed finances to help Texas schools. It must have worked because last Wednesday the IRS made a decision that allows the state to re-open the bond guarantee program. Specifically, the decision hinged upon the agreement to raise the cap on the amount that could be guaranteed from two and a half times to five times the size of the fund, which stands at $23 billion at present. That would mean a total of $115 billion can be borrowed when the program is expected to re-open next year.<\/p>\n
This decision has resulted in a few consequences that have brought smiles all around. Firstly, the guarantee assures bond investors that the bonds would be paid by the state even if a school district defaults on its commitment. This in turn results in the highest bond rating and lower interest rates. A further spin-off is that districts do not have to buy municipal bond insurance. All these are welcomed savings to the districts.<\/p>\n
Under the new arrangement, the amount a school district could save depends on its borrowing history and the size of the bond issue. It is estimated that a district that issues $10 million in bonds could save up to $100,000 in total.<\/p>\n