On Aug. 19, the District 65 School Board approved the issuance of up to $18.2 million in bonds. The plan takes advantage of low interest rates to refinance existing bonds at a cost savings of about $5.5 million and to issue new bonds in the amount of $5.5 million for capital projects.
As part of this plan, the District will issue up to $12.7 million in bonds for the purpose of refinancing existing bonds issued by the District in 2011 – the Series 2011-A bonds. The bond documents give District 65 the right to call – or redeem – the Series 2011-A bonds toward the end of this year, said Raphael Obafemi, Chief Financial Officer of the District.
Mr. Obafemi said if the District calls the Series 2011-A bonds this year, it can pay them off by issuing new bonds at a lower interest rate – about 2%, rather the current rate of about 5%. If the District does this and keeps the maturity date the same, the District will save about $5.5 million, he said.
As a second part of the strategy, the District will issue $5.5 million in new bonds for the purpose of increasing the District’s working cash fund. Mr. Obafemi said the proceeds of these bonds will be used solely for capital projects.
Elizabeth Hennessy, a representative of the District’s financial advisor Raymond James & Associates, told the School Board on April 22 that it can issue the $5.5 million in working cash fund bonds and stay within the limits of the District’s Debt Service Extension Base (DSEB). She said the cost of the new $5.5 million in Working Cash Fund bonds would be paid primarily out of the savings the District would have as a result of financing the Series 2011-A bonds at a lower interest rate.
Ms. Hennessy confirmed that the issuance of up to $18.2 million in bonds would not increase the District’s debt service payments beyond what they are today.
The District is issuing the new $5.5 million in bonds through a process sometimes referred to as a backdoor referendum, which does not require voter approval unless 10% of the registered voters in the District sign a petition asking for a referendum on the issue within the required time after notice of intent to issue the bonds is published. No such petition was submitted to the Board.
As part of the referendum in April 2017, the District said it would allocate $1.25 million from funds approved in that referendum for capital projects each year. In light of the District’s DSEB, it appears that $1.25 million per year is the maximum amount that will be available for capital projects for some time unless the District is able to refinance existing bonds in the future at a lower interest rate and as part of that process issue new bonds within the limits of its DSEB. On April 22, Ms. Hennessy said that may be possible in 2023 and 2024. The other alternative is that the District obtain voter approval to issue new bonds for capital projects in a referendum.
District administrators have said that the District is facing $105 million in capital needs in the future. They plan to present a capital spending plan to the School Board in the upcoming school year.