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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 , 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.

E Dubya March 29, 2012 at 01:40 PM
Just yesterday it was reported UDSD is running an approx $1M budget deficit. It is absolutely irresponsible to even consider "new" capital projects in the current economic climate. Tax revenues are down because people are moving out to other districts, our community has high populations of affected employees in industries that have significantly downsized - pharmaceuticals, banking, and financial services, and property values have fallen with the economy. The reality for UDSD is the current economic base isn't going to change anytime soon and raising revenue from a shrinking tax base will make that tax base shrink more quickly. UDSD needs to get their fiscal house in order, prioritize the most important and valuable services and programs, and reducing or eliminating "nice to have" programs / services. The same advice goes for UD Township.
Bob Pesavento March 29, 2012 at 03:30 PM
Without knowing the specifics of the UDSD capital project plans it is difficult to say just "no" to any new projects. For instance, "new" could easily be replacement of a school's heating system or a new roof (that is within the definition of capital project). It does not necessarily mean a new building or playing fields (which I would be against in this economy also). So the individual items need to be looked at without a knee jerk reaction to "new" capital projects. The same situation is true for the township. New capital expenditures included replacement of various vehicles because of age/mileage (repair costs excessive) and stormwater remediation in the neighborhoods which is a prime area of problems that need to be resolved. Generally, capital projects exceed several thousand dollars with a life expectancy of at least 5 years. And regarding people moving out, the Earned Income Tax receipts for the Township were greater than anticipated for 2011 and above that for 2010. But there is no question that the UDSD and Township need to watch all expenditures very carefully.
Joe Koenig March 29, 2012 at 06:35 PM
@Bob: At the last two School Board meetings, the additional borrowing was brought up in quiet generalities (I WAS THERE). They posponed a vote on refinancing until the next meeting. I'm not sure what they want to spend the money, only that from their attitude they want to spend it. I know you dedicated much of your time to the Township, and appreciate that, but you don't have to be an apologist for them. They are, in my opinion, trying to sneak this one through. They told me they don't need a referendum for the 2006 $$, but did not respond to the 2007 $$ and wheher they needed a referendum. If they have capital projects in mind, they should have identified the by now and made them public. What is a person to think???
Kyle Bagenstose March 29, 2012 at 06:49 PM
Joe, I was a bit confused on the 06/07 myself, but according to district administrators, the "cash option" only exists on the '06 bonds. The '07 is straight forward and will be refinanced for the estimated $278,628 savings, regardless of what they choose for '06, as stated in the third to last paragraph.

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