A tax swap is a name given to a type of Tax Ratification Election that raises the maintenance and operations (M&O) portion of the tax rate, while simultaneously decreasing the interest and sinking (I&S) portion of the tax rate, so there is less or no overall impact to the combined tax rate. Like any other TRE, it would need to be approved by voters.
The concept works when property value growth outpaces building needs, or a district has surplus M&O funds that can be used to retire debt. FISD would not generate enough surplus funds to pay down debt, but if property values continue to grow at the rate they have been, there is a potential to lower the I&S tax rate in the future.
Frisco ISD remains one of the fastest growing districts in Texas and anticipates adding approximately 2,400 new students between October 2016 and October 2017. That number is down from more than 2,600 new students from October 2015 to October 2016, and about 3,600 the year before that. If this growth trend continues and building needs slow down, a tax swap may be a possibility in the future. That’s because as property values increase, the I&S tax rate will automatically generate more revenue, creating excess capacity and allowing FISD to consider bringing down the I&S rate in order to increase the M&O rate. But District leaders believe an in-depth look at school capacity and building needs should take place before recommending any form of a tax swap election. The District currently enrolls more than 56,000 students in 68 schools. More campuses will be needed in the future, as outside demographers project enrollment at build out will be between 71,000 and 81,000 students.
FISD evaluated a tax swap and ruled out this option before the August 2016 election due to the District’s fast growth and debt obligations. At the time, FISD couldn’t have predicted that enrollment growth would slow down, which then slows down the District’s building needs. Staff continue to monitor the possibility for a tax swap, but it is not being recommended at this time due to continued enrollment growth and the need to study future building needs and current school capacity.
A penny-for-penny tax swap, which would not impact the overall tax rate, would mean less overall funding for Frisco ISD, since the M&O portion of the tax rate is subject to recapture from the state, while the I&S rate is not. Recapture is the mechanism that distributes money from property-wealthy districts to property-poor districts in Texas.