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Park Rapids bond resale could mean large savings for taxpayers

By Anna Erickson

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, presented information about the refinancing to the Park Rapids Area School Board.

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 proposed issue 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 have interest rates of 4 to 4.5 percent. Based on current market conditions, Crowe said new refunding bonds are estimated to have interest rates of 3 to 4 percent. The lower interest rates would reduce future debt service interest payments by approximately $2,020,700 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 will be solicited for purchase of the bonds from local banks in the area and regional underwriters, Crowe said.

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 will be used to reduce the amount of the new bonds issued, Crowe said.

The school board will award the sale of bonds at its Oct. 20 meeting. An estimated closing date is Nov. 13.

The school board also approved the proposed 2014 – payable 2015 levy at the maximum amount. It will be decreased this fall.

Business manager Carol Hutchinson said the district won’t approve the final levy until December.

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