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Financing options for school

Published August 14. 2014 04:00PM

A financial adviser presented Lehighton Area School District's finance committee with three potential borrowing scenarios Tuesday night to pay for $52.5 million in planned building projects.

The work includes construction of a new elementary center housing K-5 students and renovations to the current middle and high schools.

Options include taking out one big bond or staggering the money over two or three smaller bonds.

"With one large bond you lock in an interest rate, but you can only refinance every 10 years," said Zach Williard, senior managing consultant for Public Financial Management Inc. "If you break the borrowing into two or three pieces, you can phase in the debt service. The likelihood is also that one or two of those bonds would be bank qualified because they are $10,000 or under. That gives you lower interest rates and the ability to refinance every five years."

The district has payments of $1.44 million in 2014-15 and $1.12 million in 2015-16 before its current debt service ends.

Three hypothetical scenarios were laid on the table:

• Borrowing $52.5 million in November 2014.

• Borrowing $10 million in November 2014, $33.5 million in June 2015 and $9 million in January 2016,

• Borrowing $10 million in November 2014 and $42.5 million in June 2015.

"We would wrap this around the existing debt service to keep the rate the same," Williard said.

According to numbers presented by Williard, all of the options would leave the district with a net 0.31-mill tax reduction as it relates to debt service payments when the debt is paid off in 2041. That takes into account $1.2 million in proposed operational savings from the elementary school consolidation each year starting with the fiscal year ending June 30, 2018.

In all scenarios, the millage rate would increase in the first two years before the anticipated operational savings are projected to begin.

Board member Rocky Ahner said he is concerned with extending the debt service out 27 years.

"I would feel more comfortable projecting out to 2020, not 2041 and putting future boards in jeopardy," Ahner said.

"These operational savings are contingent on our staff retiring and us not filling positions. We have a very young staff. It's going to take us a long time to get to that $1.2 million mark."

Cleaver, however, said the $1.2 million is a conservative estimate.

"We're going to have significant savings just in eliminating the duplication of services that goes on with having four elementary schools," he said.

"When you have four buildings you have four sets of library books, four water bills, four sewer bills and four Internet bills. Plus you have the time that our staff is traveling back and forth between buildings. We would cut out all of that."

PFM said it would ask the Lehighton board to give it authorization to proceed with gathering information at the Aug. 25 meeting.

"There is no financial commitment here," Cleaver said. "It just lets PFM know that the board is interested in pursuing this further."

Williard said one of the next steps would be to send out a request for proposal to underwriters for the bond.

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