Board reviews bond refinancing option
Toby Morris of Doughtrey & Company, Inc., of Sioux Falls told the Mobridge–Pollock School Board Tuesday, Dec. 11, there are options available to refinance the district’s high school building debt.
Morris, who worked with the district to get the originally bond financing in place, explained there is a technique that allows a bond issuer to benefit from lower interest rates when outstanding bonds are not currently callable (before the bond reaches its date of maturity.)
He told the board the finance rates have dropped again since the election and refinancing the bond with crossover advanced refunding could save the district more than $588,000 over the 30-year repayment schedule.
Using the crossover is basically taking advantage of a current low interest rate that will apply to the bonds at a future date.
The process includes selling refunding bonds and putting the proceeds of those sales into an escrow account. The escrow account is structured so the principal and interest earned on the securities are sufficient to pay all debt service on the new bonds until the time the new bonds go into effect. When the old bonds are callable, the new bonds will then pay them off. The bonds issued for the $7.04 million high school project are not callable for four years. The lower interest rates would go into effect in 2017.
He explained there are pros to the crossover and there are some cons to the process. He said if the interest rates were to drop further, the board would miss out on further savings. The crossover procedure can only be used once.
Board member Todd Wagner asked if the interest rates could drop any lower than where they currently stand. Morris said it was doubtful the rates could go much lower.
He explained that because the bonds are held by Walworth County, the county commission would also have to approve the procedure. If the school board makes the decision to use the crossover, he said he would explain to the procedure to the commission in the future.
The cost of the procedure (if the board approves moving forward with the sale of new bonds) would be 1.3 percent with 1 percent going to the finance company.
“I suggest that you wait and not pull the trigger right away,” he told the board. “We can prepare the plan and there will be no cost until you set it in motion.”
The board approved having Morris move forward with getting the procedure in motion, but will further consider the option until a further date.
Mobridge-Pollock Superintendent Tim Frederick explained Gov. Dennis Daugaard’s proposed budget for 2014 includes a 3 percent increase in state aid to education.
He said this would mean an increase of $134 per student. He said because of the 10 percent cut in state aid in the 2012 budget, the increase is not a true 3 percent increase to all districts. Some administrators are saying the increase is actually a 6.6 percent loss in funding.
The 2012 budget included one-time funding given to the state’s districts that had been designated to the general fund by the previous administration. The increase was used for bonuses in the Mobridge–Pollock District, and therefore the increase to student aid in 2014 would be a true increase for the district.
“Because our budget is based on the $4,490 per student allocation, we are ahead of the game,” he said. “We will receive the full 3 percent.”
The district will receive $4,625 in state aid per student in 2014.
Board member Jane Looyenga said she was disappointed in hearing the budget proposal and emailed the governor. He replied to her email with a letter thanking her for correspondence.
In the letter the governor praised teachers that go above and beyond to ensure that their students succeed. He then said the voters in South Dakota made it clear in the last election that they want the education community to operate within its means.
Looyenga then pulled out clippings from area newspapers that showed the governor will be asking legislature for $5 million to provide tax relief to business projects.
The governor’s proposed new-business grants were also voted down in the November election, yet, said Looyenga, the governor is asking the legislature to fund his grant project.
“The time for us to speak out on this is now,” said Looyenga. “We need to have our voices in Mobridge heard.”
She proposed that all advocates of education let the governor and state legislators know that this is unacceptable. She said that everyone in the room should contact 20 other people to write or email the governor and lawmakers to tell them why funding education is important for the future of the state. In a letter she passed on she stated that inadequate funding is leading to the loss of good teachers, over-sized classrooms, cutbacks in programs and lack of funding for student enrichment activities. She asked that residents explain to lawmakers why the time is now put more funding into our schools.
The board went into executive session at 7:30 p.m. for the annual evaluation of the superintendent. It reconvened in public session at 8:30 p.m. with no action taken