Hills School Board members took action at their Monday night meeting to save district taxpayers more than $1.5 million by refinancing the $9.9 million building bond.
At Monday’s meeting, Greg Crowe with Ehlers Inc. presented information about how the bond sale will work.
With 16 years remaining on the original 25-year bond, the district still owes $8.325 million, and is paying roughly $725,000 each year on that debt.
That’s based on current interest rates at 4-4.5 percent, but refinancing the debt at an estimated 2.25 percent on a new 16-year bond could save district 12.5 percent over the lifetime of the debt.
“The bottom has dropped out of interest rates right now,” Crowe said. “So this actually has a little bit of cushion, and in two months it could come down more and there could be more savings.”
He also said he expects a premium bid over the amount the bond is selling for, and that can be applied toward the bond
“There’s $8.325 of principal to pay off, but we’re only issuing $7.5 million in bonds because we’re expecting a premium of almost a million to pay off some of the loan,” Crow said.
“So you don’t need to borrow as much … the amount of principal will be less and true interest costs will be taken into account.”
He said the district will continue to make the same number of payments over the same time period, but the payments will be smaller with the interest savings and premium reduction.
Going forward, the district will pay $630,000 per year on the debt, nearly $100,000 per year less than it’s paying now.
When the district certifies its preliminary levy in September, it will need to factor in the current debt service payment.
But after the bond sale this fall, the budget will reflect the lower payments, so when the district certifies its final levy in December, it can lower the levy amount by $100,000.
“People are going to notice that,” said H-BC School Board member Dan LaRock. “This looks like a pretty good deal.”
To qualify for the lower interest rates, the district will borrow through the state’s free credit enhancement program and its AAA Standard and Poor’s rating.
To participate in the program, the H-BC district will need to obtain a rating call based on its fund balance, the local economy and other debt. Ehler’s Inc. will assist with that process as part of its contract with the district.
The action at Monday’s meeting authorized the sale of the bonds, bids for which will be awarded Sept. 30. The funds will be available in November for redemption Feb. 1, 2020.