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School Board Saves Money on Bond Refinancing, Looks to Minimize Debt

by on November 24, 2014 10:45 PM

The State College Area School District has saved quite a bit of money, and it’s looking to save even more.

Tom Beckett and Dave Eckhart, financial consultants from the NW Financial Group, told the members of the SCASD school board Monday night that the recent sale and refinancing of a bond worth more than $9 million saved the district roughly $775,000.

“People were stumbling all over themselves to buy your bond,” Beckett said. “We had a wide range of bids.”

The bond was ultimately purchased by PNC Bank, he said.  A large chunk of the money saved by the refinancing will be seen in the current 2014 budget, while the rest will be distributed through the district’s budgets in the coming years.

SCASD Business Administrator Randy Brown told the board that there are still other bonds to refinance, and that the district is “honing in on our next major transaction.” The next major refinancing for the district will take place sometime between January and March, while the district will “continue to research and watch the market.”

The board also discussed how to best approach the $85 million cost to finance the State High renovation project. State College voters approved taking on that amount of debt in a public referendum back in May.

Eckhart said there are many possibilities for how to borrow that money. The district has to consider how many loans to take out, the amount of each loan and how long the district will take to pay the loans back. Though the various loans would total $85 million, they could potentially be taken out at different interests rates for different lengths.

“This process is a balancing act in a lot of ways,” Eckhart said.

If the debt is spaced out evenly over several installments with 30-year terms at current interest rates, the district will likely spend less money over the course of the 30 years than if it borrows more of its debt upfront, Beckett said.

However, if the district borrows more money at the beginning of the project, the district will pay less in the long run if interest rates rise in the future.

“We’re at really low interest rates right now,” Beckett says. “Conventional wisdom says to take as much as you can for as long as you can while being consistent with your project.”

Board member Jim Pawelczyk expressed concerns that this might be the wrong way to approach the district’s debt, since there is already a fixed amount that the district can borrow. He also said that he’d prefer the shortest term possible to repay the debt, which would be best for taxpayers and the school district.

“Extending the term of that debt creates less flexibility for future boards,” Pawelczyk said. “I have no idea what their obligations will be in the future.”

The school board also heard an update on the high school project planning process, which was recently impacted by the Delta alternative education program.

At a meeting earlier this month, the board voted to include the Delta program’s new middle school level to the high school project. That added square footage to the building and an extra $4.5 million to the total cost, but the approval was conditional on further review.

To satisfy the concerns of the board, plans for a detailed educational plan and financial analysis of the Delta middle school level will be presented to the school board on December 15, according to a memo from SCASD Director of Physical Plant Ed Poprik.

School board members also funded the removal of asbestos at the Panorama Village building, but delayed a vote to put the renovation of the building out to bid until they can have further discussion.

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Michael Martin Garrett is a reporter and editor for StateCollege.com who covers local government, the courts, the arts and writes the Keeping the Faith column. He's a Penn State alumnus, a published poet and the bassist in a local indie rock band.
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