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School board discusses debt

Mount Horeb Mail
THursday, August 28, 2008

by michele kraft

bar graph of debt

This chart, provided by Brian Brewer, Director of Public Finance for Robert W. Baird & Company, shows the potential savings possible with a $1 million debt reduction payment in 2009 - the lightblue portion of the bar - and the subsequuent debt redution tha tis possible if there is no borrowing for any major renovation or building projects on campus. The interest savings - more than $328,000 - is shown in light green. Photo submitted.

Having passed a decision at the recent annual meeting to maintain the same debt levy as last year, the school board met with Brian Brewer, Director of Public Finance for Robert W. Baird & Company, who presented three financial projections to fund the maintenance and possible expansion of existing school buildings.

The first plan presented involves paying down existing debt ahead of scheduled payments, commonly referred to as debt defeasance.
This plan, currently in place, will save taxpayers $328,055 over 11 years. As with home mortgages, paying down debt early saves substantial amounts of money over the course of the loan.

According to the chart provided by Brewer, the school district will pay down current debt by about $1 million in 2009 by not reducing the tax levy. All of the current debt, estimated at a little more than $3 million, will be paid off by 2021. With this plan, no additional debt is taken on. Major renovations and building projects are put on hold indefinitely.

This is a base option, should you not address any referendum type facility needs this fall or into the spring, " Brewer said.

The next plan outlined the debt service levy if a $2.5 million referendum passed.

"One of the current near term options is to ask for $2.5 million to do some minor modifications; to buy some additional time to evaluate the longer term needs, the facilities, see where the growth is, and to determine what the best plan is for Mount Horeb," Brewer said. "If that was the route you chose in a fall referendum, you could achieve a $2.5 million dollar referendum without a change to your tax levy for 2009."
The plan would reallocate money currently planned to pay down future debt and instead pay off the new debt at larger payments than scheduled. Brewer said that a 20 year level payment is the standard across the state for long-term facility improvements, but this aggressive debt pay down would save $1.2 to $1.3 million in interest costs. This debt structure saves money by paying off the debt itself in addition to the interest, which typically makes up the bulk of payments at the beginning of a loan repayment schedule.

"It still puts you in a position to save future interests costs," Brewer said, "and have a drop planned for a point in the future when you may address longer term needs."

Superintendent Dr. Wayne Anderson clarified the impact to the taxpayer.

"If we were to go to referendum for $2.5 million," Anderson said, "the tax impact would be zero. If a house remains at the same value, [the taxpayer] wouldn't be paying any more in property taxes then than now."

"That's a function of the debt structure," Brewer said. "It's the function of previous investments that are scheduled to be retired over the next few years, creating the option to add in new improvements without increasing the current levy. That would be paid off in three years."

A longer term, $30 million debt was also discussed.

"In this scenario, you would have this structured as a $0.50 increase in 2009, which would also encompass the drop [from defeasance of existing debt]. We're going to pick a spot out in the future to create the next window of opportunity," Brewer said. "Pay off as much debt as you can, but keep an eye on the fact that in ten years you may have other needs or a second part of a plan."

"We would go for a $30 million referendum," Anderson said, "and the tax impact under this restructuring [of the debt] would be $50 per $100,000 of property value."

Under this plan, Anderson said, if a home is assessed at $300,000, its property tax would increase by $150. According to a chart provided by Brewer, this debt would be paid off by 2028.

Director Jeff Jenkins asked if the increase in property taxes would remain proportional if more money were borrowed.
"On the $30 million/20 year chart, can I carry that through to say that $60 million would be $100 per $100,000 [of property value]?"
"I wish it were that easy, but it's not," Brewer said. "The bigger the number, the more interest costs. As you know with other loans, the interest is paid earlier, so the numbers [at the beginning of the loan cycle] would go up, and I wouldn't be able to structure them out into the future."
"When we looked at a $60 million high school," Anderson said, "Brian did give us the numbers for that; it was $163 per $100,000 of property value. If your house is $300,000, it's basically $490 [in additional property taxes per year]."

Brewer added that the figures Anderson spoke of were structured differently than the $30 million outlined in the chart.
The board took no action on any of the proposed plans at the Monday, Aug. 18, meeting and set no specific date to take any further action.
The charts are available on line at *fill link in here*

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