Practicing fiscal responsibility

The Cheney School District is looking to refinance $51 million in general obligation bonds it issued in 2010 in hopes of saving taxpayers money.

The $51 million the district is refinancing is a part of an overall $78 million in construction bonds from 2010 that paid for the construction of two middle schools and one elementary school. According to Kassidy Probert, executive director of finance, the $51 million had a call feature in the 2010 bond resolution allowing the district to be able to call back the bond for redemption prior to its maturity date of 2020. The $51 million currently has a 5 percent interest rate, which is higher than the current market rate. The district can call $34,410,000 of the $51 million. It hopes to sell the refinanced bonds to pay off the old bonds and then pay off the new bonds with a lower interest rate.

Probert said the main reason for refinancing the $51 million bond is because taxpayers will pay less money on the remaining lives of the bond.

“What occurs is that each year we say ‘this is what we need to levy for our current bonds during that year to make our principal and interest payments,’” Probert said. “After we refinance the bonds, we’ll go ‘hey we need less dollars from the taxpayers to meet those obligations.’”

The savings for the district is 5 percent of the $34,410,000, which is $1.7 million.

Probert said bond underwriter Jon Gores of D.A. Davidson, who has worked with the district in its past bond sales, informed the district about the recent drop in interest rates. If the district had refinanced the bond on Feb. 15, 2015, when the present value of interest savings was at 3.27 percent, the district would have had a total net savings of $1.3 million. On Feb. 3, the interest savings was at 6.86 percent and the district would have saved $2.7 million. A week later, the interest savings was still over 6 percent and the net savings at $2.5 million.

With interest rates now falling, Probert said staff felt the time was right to refinance the bond.

At its Feb. 24 meeting, the Cheney School Board passed a resolution that allows staff to make the transaction.

During the board meeting, Laura White, registered client associate for D.A. Davidson, told the board the company will “watch the market” and see if and how the district can hit the target.

“Nothing is 100 percent certain, but it’s very, very likely that you will hit the 5 percent target, if not better,” White said.

Probert said the tentative schedule for the district to do the bond refinance is in late April. If the criteria can be met, DA Davidson will create a purchase agreement to authorize the sale. Staff also has to present a report to the board on the outcome on the sale of the bonds.

Probert said the key reason the district is pursuing a refinancing of the bond is to save the taxpayers money in the long run.

“It’s just the right thing to do,” he added.

Al Stover can be reached at [email protected].