School District 55 taxpayers will save $781,874 over the next 21 years as a result of the district’s advance refunding of a portion of its general obligation bonds on April 5.
The bonds the district refunded were part of a larger bond issue, $18.6 million, that voters approved in 2001, Business Manager Kevin Strong said. Proceeds from the 2001 bond issue were used to fund the Sweet Home High School reconstruction, the Hawthorne Elementary School classroom addition, energy conservation projects at all schools and numerous additional improvements throughout the district.
“It’s great to have this opportunity to save the taxpayers some money,” Strong said. “We appreciate the community’s support for its schools.”
The district will place proceeds from the April 2005 bond sale in an escrow account invested in government securities until the 2001 bonds are callable in 2011. The escrow account will then be used to pay off the advance refunded 2001 bonds.
“Interest rate movements during the past year created a favorable perfect-storm opportunity for us,” Strong said. “We were able to take advantage of a relatively flat yield curve in the bond market right now. Long-term rates have remained low, while short- and mid-term rates have steadily increased.”
The district’s escrow account is invested in short- and mid-term government securities, while most of the bonds the district issued are long-term obligations.
Strong expects the bond refinancing to reduce the district’s debt service property tax rate from $1.92 per $1,000 of assessed valuation last year to approximately $1.84 per $1,000 this year assuming property values equal the district’s forecast.
In dollar terms, a property tax reduction of 8 cents per $1,000 means property owners will receive $8 in annual property tax savings for every $100,000 of assessed value.
Based on current municipal bond market conditions, the district decided to refinance a portion of the original bond issue to obtain the lowest possible interest rate.
By keeping the bond issue under $10 million, the district was able to generate interest for the bonds from commercial banks and institutional investors. Municipal bonds under $10 million are considered “bank qualified,” allowing commercial banks to receive tax advantages by investing in them.
“Our underwriter, Seattle Northwest, advised us that a partial refinancing of the most expensive bonds was the best option available, given current bond market conditions,” Strong said. “We appreciate Seattle Northwest’s help and guidance throughout the refunding process.”
The district may have an opportunity to refinance the remaining portion of the outstanding 2001 bonds at a later date if long-term interest rates remain low compared to historical averages.