The sale of bonds begin with an election to authorize a specific amount—the maximum amount of bonds the district is allowed to sell. The school district sells the municipal bonds as funds are needed for capital projects. On the day of the sale, interested investors submit orders for the bonds which have been priced according to market demands. Most bonds are purchased by large institutional investors or pension funds. Some may be purchased by retail institutions that sell them to individuals in the secondary market. Interest earned on Municipal bonds by purchasers of the bonds are exempt from Federal Income taxation.
Bonds are sold in multiple maturities meaning they mature at different times over a period of years. The interest rate is typically different depending on the maturity date. Longer maturities typically carry a higher interest rate. The interest rate is determined based on market conditions and the quality of the credit. In other words, the better the credit rating, the lower the interest rate on the bond and the lower the cost of borrowing.
Cypress-Fairbanks ISD is able to achieve a AAA bond rating from both Moody’s Investor Services, Standards & Poors’, and Fitch rating agencies by virtue of the bond payment guarantee by the Texas Permanent School Fund. The District’s underlying bond ratings are Aa1 from Moody’s and AA from Standards & Poors’.
Principal and interest on the bonds are repaid over a period of time with tax collections from the Debt Service tax rate.