Westerville City School District officials, in conjunction with public finance specialists from Robert W. Baird & Company, recently refinanced a portion of the district’s bond indebtedness to take advantage of unique market conditions and significantly reduce future interest payments. “Just like residents would do by refinancing their home mortgage to save money, our school district took advantage of the current market conditions and refinanced a portion of our bond debt,” stated Board President Kevin Hoffman. “These actions have saved the residents of the Westerville School District approximately $1 million.”
The process began three months ago when representatives from Baird, along with Treasurer/CFO Bart Griffith, presented the Board of Education with a proposal to save an estimated $880,000 by taking advantage of low taxable interest rates. Lower interest rates ultimately translate into savings to district taxpayers.
David J. Conley, Baird’s managing director of public finance, said that school districts typically take advantage of non-taxable interest rates available to municipalities because historically those rates have been much lower than taxable interest rates. However, given the nation’s current economic climate, the difference between taxable and non-taxable interest rates (the “spread”) has narrowed so much this past year that it was financially advantageous for the district to refund the bonds using a taxable interest rate.
The district refunded $27,355,000 in Series 2004 bonds that otherwise would not have been eligible until 2014 for refunding using a non-taxable interest rate. Conley said that on the day they priced the bonds, the spread was .56 percent, but after the bonds were sold, the rate started going up.
“In terms of timing the sale we hit it right on the nose, and our earlier estimates were right on target as well,” Conley said. “We actually saved $60,000 more than originally estimated, so the total savings achieved was $942,471. Not only were savings maximized, but we also secured an optional call date in December 2017, which gives the Board a tremendous amount of flexibility.”
Conley noted that the Board made a great decision to front-load the savings because taxpayers will see true savings on their tax bills. In 2013 the total savings will be $794,000 and in 2014 it will be $134,000.
According to Conley, a critical piece to the overall refunding process was a presentation by district officials to the independent ratings companies Moody’s and Standard & Poors.
“Despite outside influences that have the potential to negatively impact the district’s finances, these independent rating companies remained impressed by the quality of the Westerville City School District’s leadership team and strength of the district’s current financial position,” Conley explained. “As a result, both Standard & Poors and Moody’s decided to maintain the district’s current ratings of AA- and Aa2, respectively. This is critical because a high rating from these independent analysts means lower costs to the district and its taxpayers.”
Griffith said the Board showed tremendous foresight by putting the necessary pieces in place that allowed this refunding to happen at the best possible time.
“We’ve promised continued financial accountability to our residents, and being able to achieve this type of long-term savings for taxpayers is just one more step toward meeting this pledge,” Griffith said.
Board members and district officials completed a similar measure in 2006 to refunding a portion of the district’s 2001 bonds that ultimately saved taxpayers slightly more that $3 million in interest payments.