What Is the I&S Tax Rate and How Does It Work?

The Interest and Sinking tax rate, usually written as the I&S tax rate, is the portion of a Texas property tax bill that pays principal and interest on bonds a local taxing unit has already issued. It appears on your statement next to the Maintenance and Operations (M&O) rate, and the two added together make up the total rate charged by each school district, city, county, or special district that taxes your property.

What the I&S Line Actually Pays For

Every dollar collected through the I&S rate goes into a restricted fund that can only be spent on debt service.¹ The taxing unit cannot move it to salaries, utilities, or any other operating cost. That wall exists to protect bondholders: investors who bought the debt need assurance the tax revenue is actually going toward repayment.

The projects behind that debt are almost always large capital investments. New school buildings, road construction, water and sewer infrastructure, fire stations, and major equipment are the kinds of items that cost far more than a single year’s budget can absorb. Issuing bonds spreads the cost over the useful life of the asset, so the generation using a new school helps pay for it rather than one year of taxpayers footing the entire bill.

How I&S Differs From M&O on Your Bill

The M&O rate funds day-to-day operations: teacher salaries, classroom supplies, police and fire staffing, park maintenance, and similar recurring costs. The I&S rate covers the brick-and-mortar side, retiring the debt that financed physical assets.¹

Both rates are expressed per $100 of taxable value. If your school district sets an M&O rate of $0.75 and an I&S rate of $0.22, the total school district rate is $0.97 per $100. On a home with $300,000 in taxable value, the I&S portion alone costs $660 per year. Your county, city, and any special districts each set their own split, so a single property owner may be paying multiple I&S rates to different entities on the same bill.

How the I&S Rate Is Calculated

The I&S rate is not a discretionary number a board picks. It follows a formula tied to the debt payments coming due that year. Three inputs drive it:

The annual debt service requirement, meaning total principal and interest owed across all outstanding bond series for the upcoming year.
The certified total taxable value of property in the jurisdiction, after exemptions.
The anticipated collection rate, a percentage reflecting how much of the billed tax the unit realistically expects to collect, typically in the mid-to-high 90s.

The math takes the total debt payment due, subtracts any excess collections carried forward from the prior year, divides by the anticipated collection rate, then divides that result by total taxable value and multiplies by 100.² The output is the rate per $100 of taxable value.

This is why an I&S rate can move in either direction even when no new bonds are issued. If property values climb sharply, the same debt payment spreads across a bigger tax base and the rate drops. If values stagnate or fall while bond payments stay fixed, the rate rises. The district has no choice; the debt payments are contractual, so the rate adjusts to whatever level covers them.

Where the Debt Comes From

Bond Elections

The most common path to an I&S tax is a bond election. A school district, city, or other taxing unit puts a proposition on the ballot describing the projects and the total dollar amount of bonds it wants to issue. Texas law requires these elections to fall on uniform election dates in May or November.³

The ballot must include a plain-language description of each specific purpose, the principal amount, and a statement that taxes sufficient to pay the bonds will be imposed. Each distinct purpose is a separate proposition, so voters can approve a new high school while rejecting a natatorium.³ Once approved, the I&S rate adjusts each year to generate just enough revenue to cover scheduled payments. Bonds typically mature over 20 to 30 years, and the I&S rate associated with a particular series drops to zero once those bonds are fully retired.

Certificates of Obligation

Not every dollar on your I&S line was approved at the ballot box. Certificates of obligation allow cities, counties, and hospital districts to borrow money without putting a proposition to voters.⁴ The governing body must publish notice in local newspapers at least twice, describing the projects, the amount, and the repayment method, more than 30 days before voting on the issuance.

A safety valve exists. If 5 percent of the jurisdiction’s qualified voters sign a petition opposing the certificates, the governing body must hold an election before proceeding.⁴ And a local government cannot use certificates to finance any project voters rejected in a bond election within the previous three years, unless the project addresses a public calamity or is required by state or federal law. Many taxpayers assume all debt on their I&S line was voter-approved. Often it was, but not always.

The 50-Cent Cap on School District I&S Rates

Texas law imposes a hard ceiling on school district I&S rates. Under Education Code Section 45.0031, a school district cannot issue new bonds unless it can show the Texas Attorney General that it can service all outstanding and proposed debt from a tax rate no higher than $0.50 per $100 of taxable value.⁵ This is commonly called the 50-cent test.

A district can satisfy the test two ways. It can use current certified taxable values combined with state assistance received under Chapters 46 or 48 of the Education Code. Or it can rely on projected taxable value up to five years out, but that projection must come from a certified appraiser with documented forecasting experience, and the Attorney General will only credit 90 percent of the projected figure.⁵

The practical effect: fast-growing districts with rising values can issue more bonds than stagnant districts, because a larger tax base makes it easier to stay under $0.50.

Why the Voter-Approval Rate Rarely Restrains I&S

Texas caps the total rate a taxing unit can adopt without triggering an automatic election. This cap is the voter-approval tax rate, with separate M&O and debt service components. The debt service piece equals the rate needed to cover that year’s minimum required bond payments, adjusted for any excess collections and the anticipated collection rate.²

Here is the detail most taxpayers miss. The I&S component of the voter-approval rate can rise without triggering an election, because the debt payments are fixed obligations the district already committed to. The voter-approval mechanism primarily constrains the M&O side. A governing body can adopt an I&S rate above the calculated minimum, but doing so requires a motion approved by at least 60 percent of the governing body stating the minimum rate, the proposed higher rate, the difference, and the purpose of the excess revenue.²

When the I&S Rate Goes Down: Refunding

Local governments can refinance existing bonds when interest rates drop, much like a homeowner refinancing a mortgage. Refunding bonds replace older, higher-interest debt with new bonds at a lower rate, reducing the annual debt service payment and letting the unit lower its I&S rate. Between 2018 and 2022, Texas local governments issued $36.81 billion in refunding debt and realized $5.52 billion in gross cash savings.⁶

Refunding does not require a new bond election because no additional debt is being created. The district is swapping one payment schedule for a cheaper one. If you see your I&S rate fall in a year when no bonds matured, a refunding is the likely explanation. The savings flow to taxpayers through a lower rate, since the I&S fund is restricted to debt service and the district cannot redirect the difference to operations.

How I&S Changes Reach Your Mortgage

Most Texas homeowners pay property taxes through an escrow account bundled with their mortgage. The lender estimates the annual tax bill, divides by 12, and adds it to the monthly payment. When a new bond issue raises the I&S rate, or when rising property values increase your taxable value, the total bill climbs and the lender adjusts the escrow collection to match.

Mortgage servicers run an escrow analysis at least once a year. If the projected bill exceeds what has been collected, you will see either a lump-sum shortage payment or a higher monthly payment going forward. That is why a bond election passing in November can show up on your mortgage statement several months later. The increase is not a fee from your lender; it reflects the I&S rate your taxing unit adopted to cover the voter-approved debt. Following your local taxing units’ proposed rates during the annual truth-in-taxation process is the most reliable way to see these changes coming before they hit your escrow statement.

1
Texas Education Agency. School District Property Values and Tax Rates
2
Texas Comptroller of Public Accounts. Tax Rate Calculation
3
City of Nacogdoches. Issuing Municipal Debt in Texas
4
Texas Comptroller of Public Accounts. Certificates of Obligation
5
State of Texas. Texas Education Code 45.0031 – Limitation on Issuance of Tax-Supported Bonds
6
Texas Bond Review Board. 2022 Local Government Annual Report