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PR School Dist. to get nearly $2.5 million debt reduction

By Anna Erickson

A bond sale went better than expected last week, resulting in a $2,475,960 debt reduction for Park Rapids Area School District.

Refunding of building bonds could save the Park Rapids Area School District about $200,000 a year, or just over $2 million over the life of the bonds.

Greg Crowe, a financial advisor with Ehlers, reported that bids for the school district’s building bonds came in with a low bid of 1.9392 percent. He had estimated 2.3 percent.

“Property taxes will go down,” Crowe said.

Taxpayers won’t see the decrease on their Truth in Taxation statements but it will be reflected on their bill next year, he said.

The school district has General Obligation School Building Refunding Bonds from the Century School building project from 2005. The bonds are now eligible for refinancing, Crowe explained.

The sale will finance a current refunding of the 2016-25 maturities of the $28,450,000 General Obligation School Building Refunding Bonds, Series 2005A. The purpose of the refunding is to reduce future debt service payments and tax levies, according to an executive summary provided by Ehlers.

The existing bonds had interest rates of 4 to 4.5 percent. The lower interest rate will reduce future debt service interest payments for a total of $2,475,960, or about $245,000 per year between fiscal years 2016-25. This will cause a reduction in property tax levies for taxes payable in 2015 through 2024.

Because the district is issuing more than $10 million in tax-exempt obligations during the calendar year, the district will not be able to designate the bonds as bank-qualified obligations.

In order to obtain the lowest interest cost to the district, competitive bids were solicited for purchase of the bonds from local banks in the area and regional underwriters, Crowe said.

Some of the bigger companies ended up stepping up to make bids, with J.P. Morgan Securities, LLC making the low bid.

Under current market conditions, most investors in municipal bonds prefer premium pricing structures, according to the executive summary. A premium is achieved when the interest rate paid by the issuer exceeds the yield to the investor, resulting in a price paid that is greater than the face value of the bonds.

The sum of the amount paid in excess of face value is considered a reoffering premium. The underwriter of the bonds then retains a portion of this reoffering premium as compensation but will pay the remainder to the district. Any premium received was to be used to reduce the amount of the new bonds issued, Crowe said.

Anna Erickson
Anna Erickson is editor of the Wadena Pioneer Journal.
(218) 631-2561
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