Park Rapids Schools building program will start with $30M bond sale
After a bump in next year's debt service levy, district taxes are projected to level off while old bonds are retired and payments on new debt begin.
The Park Rapids School Board on Monday approved the sale of a $30 million general obligation bond series to fund an upcoming school building project.
According to Greg Crowe, education finance team leader with Ehlers, Inc., this will be phase 1 of a $51.65 million bond issue that voters approved on Nov. 2. Phase 2 will be issued about a year later, he said, for a combined debt service term of 22 years.
Crowe explained that having two bond issues will help the district manage its tax rate during the next four years, while existing bonds are being paid off.
He further explained that with annual debt service payments, the bonds being refunded each year are basically loans for that many years, with the longer-term bonds subject to more market volatility.
Therefore, he suggested apportioning the bonds throughout the 21-year repayment schedule to lock in the current, low interest rates. He said this would give the district an opportunity to refinance the bonds later, bringing tax savings.
Noting that the district’s underlying credit rating is A+, Crowe called this a nice rating for a non-metro school district. He recommended participating in a free credit enhancement program, which will enable the district to settle the bonds with a AAA credit-enhanced rating.
“Doing that doesn’t give you AAA rates, typically, but it gives you better than A+ rates,” he said.
Crowe proposed awarding competitive bids for the bond sale on Jan. 18, 2022 to the lowest-interest-rate bidder, with funds to be deposited by Feb. 10. He added that the district can put excess funds from premium payments into the construction fund for contingencies. With the current market, he said, most districts are happy to have any extra funds because construction bids are coming in so high.
In a chart of estimated tax rates for debt service in coming years, Crowe projected a slight reduction in the district’s debt service levy in 2026, which should allow the district to do additional borrowing for other projects in a few years.
However, after an increase in the debt service levy for 2022, Crowe said the proposed debt structure should keep taxes level over the life of the bond.
Due to growth in the school district’s tax base, Crowe said the impact on individual taxpayers will be less than the district projected in campaign materials for the referendum.
Superintendent Lance Bagstad asked whether the district could reject all bids, in case interest rates spike before the sale. Crowe advised the board that it would be better to withdraw the request before the bid opening if that happens.
Board member Jay Pike made the motion to issue bond series 2022A for up to $30 million, and board member Stephanie Carlson made a motion to adopt a post-issuance debt compliance policy for tax-exempt and tax-advantaged bonds. Both motions passed unanimously.