School Business Affairs September 2019

18 SEPTEMBER 2019 | SCHOOL BUSINESS AFFAIRS FINANCE AND ACCOUNTING Issuing Municipal Bonds: Understanding CIBs and CABs Understanding the differences between CIBs and CABs can help a district develop a cost-effective financing plan. By Tammie Beckwith Schallmo and Robert E. Lewis III Traditionally, public school districts have issued cur- rent interest bonds, or CIBs, which pay principal at maturity and interest semiannually based on a fixed interest rate. In some cases, districts may consider issu- ing capital appreciation bonds, also known as CABs or zero-coupon bonds. With CABs, interest is compounded and is not paid until a bond matures. CABs are similar to U. S. savings bonds, which are purchased at half their face value and pay no periodic interest. Because of the variance in interest frequency, school districts should carefully evaluate the differences S chool districts are challenged to find the most cost-effective way to issue debt for capital improvements while considering the tax impact on current and future taxpayers. In determining the best way to achieve that balance in an ever-changing municipal bond market environment, school districts must be mindful of several variables, including how the debt should be structured, the length of maturity, annual payment amounts, and interest expense. These key decision points depend on the type of bond and the amount of debt currently outstanding. DRAGONIMAGES/STOCK.ADOBE.COM