UDSD Weighs $550k Refinancing Savings with New Loans
The district could save as much as $550,000 by refinancing loans, but might instead choose to take advantage of low interest rates on new money for capital projects.
The Upper Dublin School District stands to save as much as $551,020 by refinancing loans from 2006 and 2007, according to a presentation from advisors of Public Financial Management, Inc. at Monday's night school board meeting.
The district currently owes principal of $7.12 million on the '06 bonds and $8.7 million on the '07 bonds, with graduated interest rates that range from 3.5 percent to 4.25 percent in the final year of payments in 2029.
According to analysis by PFM, the district could instead get interest rates as low as 1.06 percent on refinanced bonds in 2013, increasing to 3.8 percent by 2027. The difference would save $272,390 on the '06 series, and $278,628 on '07. In both cases, the district would see almost all of the savings upfront in 2013.
However, the district also has one other option it is considering: to instead take out either $1.8 or $2.8 million dollars in new capital in the refinancing of the '06 bond. In that case, the value would not be as clearly demonstrated as in simply refinancing for lower interest payments, but the district would be able to take advantage of the low rates to fund capital projects, administrators said.
"We're trying to take advantage of historically low interest rates and an opportunity to refinance, not unlike refinancing a home mortgage," said district superintendent Michael Pladus. "The question is, how best to maximize the potential proceeds from the refinance? Take it all at once upfront, or do we use it to take advantage of getting more cash on hand?"
After several audience members questioned what the new money would be used for, district administrators said the funds could only be used for capital projects. Administrators also said that the district did not need to seek approval through a voter referendum, as the loans occurred before the introduction of Act 1 and were not used to pay for construction of the new high school.
District business administrator Brenda Jones Bray later told Patch that the funds could be used for a variety of projects, but that the district didn't have any firm ideas yet.
"In the past, bond funding has been used for facility projects, large or small, and for long-term qualifying purchasing such as school buses or, in some cases, technology," said Bray. "The bond fund could also be used to reimburse the operational budget for certain qualifying expenses that would provide some much needed flexibility in moving forward. No definite decisions have been made to date regarding the exact uses of the money, but I would anticipate a combination of the above with some priority uses expected to include track repair or replacement at Cardinal Stadium and roof replacement at Fort Washington Elementary School."
If the district chooses to exercise either the $1.86 million or $2.89 million cash option on the '06 series, the payments would extend through 2033, according to the estimates. The district would still realize an estimated savings of $278,628 on the '07 series.
Although representatives of PFM had hoped to have the board's decision at Monday's meeting, members asked for more time to further consider its options. The board did pass a resolution to move forward with either option, but which they take likely won't be publicly decided until the body's April 9 work session meeting.
As reported by Patch, the district is currently facing a $1 million shortfall in the 2012-13 budget. If the board chooses to take the savings on both bond series, it will likely help to close that gap, but could leave the district exposed to less favorable rates for projects it considers necessary in future years.