After Perham-Dent School District voters in 2015 approved $45.27 million in bonds to build a new high school and other improvements, the school district is now looking to save $1.3 million over 12 years by taking advantage of low interest rates.
If successful, the process would eventually save people in the school district some money on their property taxes. Here’s what you need to know about how the process works.
How is the district planning to save money?
With the low interest rates, the school district is refinancing the construction bonds for the 2025-37 payments. This would lower school taxes for taxpayers.
From 2025-37, the district is expected to save about $100,000 a year, as presented by Michael Hoheisel, the managing director for BAIRD, a financial services company used by the district.
“We would exchange older, long-term interest rates with new shorter, lower interest rates to arrive at the potential savings goal,” Hoheisel said.
The district will work with BAIRD to sell new bonds at the adjusted rates, school business manager Kristi Werner said. The new bonds will be at an interest cost of 1.67%. The 2016 bonds were at 2.84%. The original bond sale was approved by voters in November 2015 and sold in March 2016.
“The district will not proceed with the refunding unless there will be at least a 3% savings,” Werner said in an email to the Focus. Minnesota law requires at least 3% in savings. In Perham's case, 3% would be about $1.3 million, but the school district could save more than that.
The sale of the new bonds will be no higher than $32,050,000.
What is the process of refinancing bonds?
The process is similar to refinancing a home mortgage. Though, the district is not able to trade one interest rate for another all at once. The district can use the lower rates for a portion of the bond debt, from 2025-37.
Before the bonds go for sale on the market, the district will apply for an underlying credit rating, which is good for six months. With their credit rating, the bonds would be ready for sale in early March, Werner and Hoheisel said. A statement on the district’s accounting and enrollment is also included in the national marketing process.
The interest rates are determined to be in a good range prior to the sale by watching the market on an hourly and weekly basis for trends, Hoheisel noted.
“It’s being very fiscally responsible with the remaining dollars of the bond issue,” Hoheisel said.
The new bonds also allow the school district the option of going through the refinance process again in 2028 if interest rates decrease.
Between 2022-24, the district will continue to pay the 2016 interest rate. The district will have an escrow account to help with these payments.
“The more we can invest and receive in the escrow … the more savings we can generate for the taxpayers of the school district,” Hoheisel said.
When will taxpayers see a benefit?
The bond debt is paid back with tax revenue from the district’s taxpayers. May and October 2024 will bring the first decrease, according to Hoheisel. Bond payments are made every six months.
The school board would certify the lower levy in December 2023 for taxes payable in 2024.
What are the next steps?
The new bonds will likely go to market in early March. BAIRD will continue to monitor the market to see if the 3% savings are met. The bonds would then be sold. If the market fluctuates outside this goal, the bonds would not be sold.
After the sale of the bonds, the school board will choose a state and local government series or investment agreement for the escrow account.