Residents that have taken advantage of historically low interest rates to refinance their homes understand how the Tooele County School District just saved a lot of money.
On Tuesday, school district officials finalized refinancing $13.2 million in general obligation bonds, an action that is anticipated to save the district $76,594 in payments per year over the next seven years. The total amount of anticipated savings is $563,161.
“We are determined to pursue savings wherever we can find them,” said Scott Rogers, Tooele County School District superintendent. “And this was a lot more savings than we expected.”
The board had anticipated the deal would save around $350,000 when on Feb. 11 it authorized Rogers and TCSD Business Administrator Lark Reynolds to refinance the bonds.
“The timing was key,” said Rogers. “We sold the bonds at a time when interest rates dropped even lower than expected.”
The net savings to the district of $563,161 is a 4.3 percent reduction in expenses with a true interest cost of 1.389 percent. The previous interest rate ranged from between 4.25 and 5.0 percent.
The new GO bonds were sold in an electronic bid format on the open market that required the bonds to be rated by major national financial services. Standard and Poor’s rated the district at AA- and Moody’s rated the district with an Aa3 rating, both exceptional ratings, Rogers said.
School district general obligation bonds in Utah are also backed by the full faith and credit of the state with a AAA bond rating, according to Alex Buxton of Zions Bank Public Finance, a financial adviser to TCSD.
“It was fun watching the bids come in,” Rogers said. “We were able to watch the bid process online from the district office. It looked something like eBay.”
A total of 14 bidders logged on the website with the district receiving 10 bids, according to Rogers.
The bonds that were refinanced are general obligation bonds, issued after voter approval in the district. They were originally issued for $18 million and $21 million in 2005 and 2006, and were used to finance the construction of Stansbury High School and Settlement Canyon Elementary.
With the bonds successfully refinanced, the school board is now looking at putting a general obligation bond on the ballot in November that will allow the district to lower its payments on $17.4 million in bonds issued by the district’s Municipal Building Authority, according to Rogers.
The MBA is a separate legal entity from the school district that is governed by the school board.
State code allows the district to form an MBA that can bond for public improvements without voter approval. The MBA leases the improvement to the school district and uses the lease revenue to pay off the bond.
MBA bonds have a higher interest rate than general obligation bonds because, without the vote of the public, MBA bonds are not considered backed by the full faith and credit of county residents.
A projection prepared by Zions Bank Public Finance shows that with the lower interest rate of a general obligation bond in place of MBA bonds, the district may result in an average annual cash flow savings of $180,379 through the bond’s maturity date in 2029.
“It’s great that we can take advantage of these low interest rates to reduce our debt payments,” said Rogers.