District saves money by refinancing debt
But new loans needed to cover planned construction projects
New Berlin — Patience has paid off for the school district and its taxpayers.
Taxpayers will see a savings of $465,000 over the next 11 years from the district refinancing part of its debt. The School Board on Monday approved refinancing $5.33 million to reduce the interest rate from 5.25 percent to 2.74 percent.
"This goes straight to the taxpayers," board member Art Marquardt said.
The patience comes in because the board had hoped to refinance in 2007 when the savings would have been $430,000, bond adviser Carol Wirth said.
But only a week after the board considered the refinancing, the financial market meltdown occurred, she said. The potential savings from refinancing dropped to $300,000 and then fell even lower.
At the time, Wirth recommended holding out for a better chance. And that chance came now, along with $35,000 more in potential savings.
The savings will be from the 2010-11 school year through the 2020-21 year.
Fund needs to grow
Besides the greater savings, school officials are happy that Moody's Investors Service confirmed the School District's AA bond rating in the refinancing process.
A high bond rating means lower interest rates on the millions of dollars the district borrows every year to keep operating until property taxes start to come in.
Although Moody's would like to see a larger fund balance than what the district has, it was lenient because the district now have a policy of getting its balance up to 10 percent, Wirth said.
The district is under the gun, however, to get it within a hare's breath of 10 percent in the 2010-11 budget or risk seeing the bond rating go down, warned Superintendent Paul Kreutzer. The 2010-11 budget is going to need a surplus to put toward the fund balance, he said.
The fund balance was only 3.9 percent when Kreutzer came to the district nearly three years ago, but is now up to 8 percent, he said.
Planned bonds fall through
In a little rockier financial development, financing roughly $2.6 million for three school projects will cost more than officials had hoped.
The district plans to spend about $300,000 to install boilers at Eisenhower Middle/High School, $2 million to extend sewer service to New Berlin West Middle/High School and $300,000 for a new concession stand for Eisenhower. The district will be paid back about half the cost of the concession stand by the Eisenhower Football Booster Club and the Generals Eisenhower youth football program, however.
One financing problem for the entire borrowing package is that the zero-interest bonds under the federal stimulus program that officials had hoped would cover part of the cost probably will not be available, said Roger Dickson, director of finance. While the district has been approved to sell $718,000 of the bonds, buyers do not seem interested due to uncertainties caused by potential rule changes being introduced by the state, he said.
A second financing problem involves the concession stand. The district cannot issue tax-exempt bonds, as officials had intended. The concession stand borrowing does not qualify for tax-exempt bonding because the football groups will get preferential treatment, Dickson said. So, the district will have to seek taxable financing or a loan from the state trust fund.
The board discussed a 10-year payback period for the $2.6 million, which would save the district money on interest. But the consensus was to go for the 20-year loan and try to pay it back faster, if possible.
The board will vote at a later meeting on the new borrowing.
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