Having cake and eating it, too
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With a little financial acumen the Cabot School District not only will save upwards of $1.6 million dollars with a bond refinancing but most of the savings would be available to use in the first year, Jack Truemper, Stephens Inc. senior vice president for public finance, told the Cabot School Board recently.
Superintendent Tony Thurman pointed out that when the entire debt structure is considered, since 2010 the district has realized nearly $5.5 million in savings yet will pay off the debt in the same amount of time through “strategic re-funding,” .
Truemper presented the information in committee while explaining a bond re-funding to be considered later at the regular board meeting.
Bond sale on the refinancing was completed a week prior to the meeting, “We were very pleased with how the bids came in,” Truemper said.
With $29.9 million in existing bonds, refinancing with the bond sale has produced a savings of $1.6 million over the life of the bond. In the structure of the refinancing, most of the savings will be seen in the first year with a $1.5 million difference in the bond payments, Truemper said. The second year will see a savings of $91,000, with subsequent years at $5,000 or less, he said.
The structuring puts the savings at the early part of the term of the bond, which matures in 2032. That makes the funds available to use, but it must be used for academic facilities or equipment to ensure the school district continues to get bond-debt assistance, Truemper said. “You just can do a whole lot more with $1.5 million than if it was spread out over time.”
Refinancing will maintain a wide margin in debt service millage to property tax revenue, which remains strong even calculated for no growth in the area, Truemper said. “But we know…that the assessment is going to grow each year,” he said.
The surplus, the difference between the debt service millage and the revenue, can be used for any school purpose, Truemper said.
Thurman said that, since June 2010, “strategic re-funding” of the district’s bond debt has saved about $5.5 million – but has not extended the life of the bonds. The funds are saved, made available to use for school purposes other than debt service, while the bond is retired in the same amount of time.
“People ask how it is we’ve done some of the projects we have done … it has been by not extending the debt beyond three-year calls,” Thurman said. That makes it possible for the school board to take advantage of better interest rates to save money to use for school projects rather than debt service, yet still pay off the debt on schedule, he said.
“Are there any more bonds we can re-fund,” school board president Mark Russell asked.
The school board members voted later, in the business meeting, to approve the re-funding.