School District locks in interest rate for most of referendum debt
The East Troy Community School District recently locked $20 million of its upcoming referendum debt for a better than expected 3.53 percent interest rate. The general obligation refunding bonds, which were dated and settled as of Sept. 2, were bid and locked in mid-August.
When the referendum costs were estimated last winter, a rate of 4.25 percent was anticipated. This savings of .72 percent in the interest rate is expected to save about $400,000 to taxpayers in interest costs and $1.6 million less in premium applied to interest over the life of the 20-year borrowing.
As the district was working on the referendum process, much discussion centered around the tax rate. From surveys, district officials knew the voters would most likely only support a referendum with no tax increase. With the upcoming expiration of previous debt in 2017, and reducing debt at a faster rate in recent years, layering in a new debt via referendum with voter approval was possible at a $0 tax increase.
But, the amount that could be financed was short of district goals. And one goal in particular loomed – returning Prairie View to grades 3-5 and including second grade in the new building proposed for 4K through first grade.
The School Board agreed to ask a first question which would have no tax increase, and a second referendum question, which would have a projected tax increase of 16 cents per $1,000 of home value. Both questions passed in April.
That $16 for a $100,000 home was based on conservative estimates computed at the time by Robert W. Baird, the district’s counsel for bond issuance, district business manager Kathy Zwirgzdas said.
With the interest rate now lower, the tax increase is down to 5 cents per $1,000 of home value, or $5 for a $100,000 home, $10 for a $200,000 home, $15 for a $300,000 home, etc. Meaning, homeowners with a home value of $200,000 will be paying less than $1 per month.
When seeking a referendum in January, passing it in April, and proceeding with bond issuance in August, Baird has to try to project what the interest rate could be nine months later.
“Baird always uses a conservative approach,” Zwirgzdas said. “And that is why we appreciate the work they do with us. Bringing good news to the tax payer – $5 in taxes per a $100,000 home is certainly easier to celebrate than having to say it now costs $30.”
“The way I look at it, is that the voters approved up to $16 per $100,000 home. We couldn’t bring a higher cost to them now and thanks to the better than expected interest rate we don’t have to,” School Board President Ted Zess said.
The district is still going to lock the second phase of the financing, for $4.7 million, in the new calendar year because there are some advantages of breaking up the financing in two separate calendar years. However, district officials wanted to lock in the majority of the financing now while the rates are still favorable. In addition, the district was able to maintain its financial rating of Aa2 with Moody’s, which is harder now that Moody’s has a new scorecard, Zwirgzdas said.
Maintaining that rating also positively affected the final interest rates the School District was able to receive.
“It is our goal to complete this referendum better than promised in all areas – the projects, the financing, and most importantly; the increase on our student learning environments,” District Administrator Christopher Hibner said.
