The Crested Butte News Serving the Gunnison Valley since 1999
Lower interest rates
The RE1J school district currently has the opportunity to refinance its existing bonds, an endeavor that would save the taxpayers approximately $3.2 million in interest.
District business manager Stephanie Juneau presented these numbers, along with a preliminary official statement and a draft resolution, to superintendent Doug Tredway and school board members at a meeting on Monday, September 22.
Juneau explained that historically low municipal bond rates have precipitated an auspicious moment in the market, and urged the board to take action in case the atmosphere shifts.
“This opportunity has arisen because long-term tax-exempt interest rates have dropped to all-time lows in the past few weeks. This is partly because of a lack of other Colorado municipal bond issuances, and also the very low rates on U.S. Treasury Bonds. This environment may continue to improve or reverse,” Juneau said.
The funds in question were acquired in 2008 and 2009 after the taxpayers voted to pass a $55 million general obligation bond to reconstruct school buildings throughout the district. Those bonds currently bear an interest rate of 3.25 percent to 5.25 percent, while rates of the potential bonds range from .15 percent to 3.5 percent. Lowered interest rates could save the district 6.73 percent, or $3,235,752 in interest, in present value terms.
When deciding on how to structure savings, the board would have the option of taking yearly increments over the life of the bonds, which would expire in 2033, or taking the bulk of the savings at the front end.
Juneau has consulted with investment banking company George K. Baum on how the district should proceed if the board moves to continue with the refinancing on October 6.
“George K. Baum would sell the new bonds for the district, and proceeds would be placed in an escrow account, which would be invested in U.S. government securities. This account would make payments on the old bonds until the call date in December 2018,” Juneau said.
Todd Snidow, manager of George K. Baum & Company’s Colorado Primary and Secondary Education Finance Group, explained that taking advantage of currently low rates would leave taxpayers with decreased payments in the future.
“At the call date, the money that is sitting there, which is about $50 million, pays off the old bonds, and the taxpayers are just left with payments on the new refunding bonds,” Snidow said.
The deal with George K. Baum is designed to avoid any risks for the taxpayer, as the district is not obligated to move forward should interest rates rise prior to the completion of refunding.
“If for some reason before we get this done rates were to spike, there is no cost to the district. We only get paid if the deal closes,” Snidow said.
Juneau also noted that taxpayers would not have to pay for the refinance, as all costs are inclusive in the sale of the bond.
“All the savings figures are net of fees and expenses, and all costs involved in putting the bond issue together are paid from the sale of the bond, resulting in no out-of-pocket cost to the district,” Juneau said.
The draft of resolution, which the board will be asked to approve on October 6, will authorize Juneau and Tredway to refinance bonds for up to a year when rates are favorable. If the deal goes through, Snidow expects to begin selling bonds by the end of the first week of October.
