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My School Owes Who? How Bonds Work.

Background

Up until recently, Indiana school districts could take out a kind of loan to pay for expensive construction projects or to help them get through rough times.  Such a loan is referred to as a bond.  Similar to bonds issued by private companies, these are essentially IOU’s issued by the school.

In Indiana, schools cannot issue bonds in excess of 10-million dollars for elementary and middle school construction or 20-million dollars for high school construction projects without voter approval.  Bonds are also limited by Indiana’s constitutional tax cap. Without a referendum, schools cannot issue bonds which would cause their total property tax rate to exceed 1-percent for homestead properties, 2-percent for non-homestead residential and commercial properties, and 3-percent for industrial and agricultural property.

There are currently a number of schools hitting the property tax cap because of outstanding debt issued prior to the passage of the amendment.

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