School board plans to use bond funds to improve ratingBy BUSTER WOLFE,
The Lamar County School Board targeted refinanced school bonds for buildings and buses during a special meeting Monday morning to help improve the bond rating before a possible Jan. 1 deadline.
Passage of the hotly-debated federal tax bills in Congress could determine if the Lamar County School District will see as much as a $930,000 savings through re-financing the bonds.
Superintendent Tess Smith said defining the purpose for the bonds is helpful.
“They wanted us to commit these funds toward that because it will help us on the rating,” she said. “We are trying to get a good rating going into that.”
Financial advisor Warren Greenlee of Duncan Williams – an investment banking firm headquartered in Memphis, Tenn., and with an office in Jackson – explained the situation to the school board during its meeting on Nov. 13 at the Purvis Upper Elementary School’s Multi-Purpose Building.
Greenlee said passage of the federal tax bills will deny the school district the opportunity to re-fund current notes and pay off the interest and capital of the bonds with the money saved with the lower interest rates on the bonds and the higher investment return on funds held in an escrow account.
“The 2013 notes were issued several years ago,” he said. “The notes were not prepaid for until 2023, but federal tax laws allow you to refinance notes well in advance of the call date, or the prepayment date. The way that works is that you issue new notes – the re-funding notes – put the proceeds in an escrow account, that money is invested in the escrow account and the escrow funds pay the interest and the principal of the re-funded bonds – the bonds that we are paying off – on the call date, or the re-funding date.
“Because the interest rates are low enough on the re-funding bonds and because the investment return is good enough on the escrow account, you actually can still realize savings by issuing the bonds this far in advance.”
The savings realized in similar school districts have gone toward other projects, such as construction of new facilities, paying off bonds on large items or adding such long-term investments as athletic field lighting.
Greenlee said interest rates have started increasing this year, which would affect the final savings on the refinancing.
“More importantly, Congress’ Republican leadership’s tax overhaul proposals … also affects tax-exempt bonds, such as the school district’s ability to issue a re-funding bond,” he said. “Both the House and the Senate versions of the tax bills would eliminate the ability to do advanced re-fundings, which we were talking about in this case. The new federal tax law, if it goes into effect as proposed by both the House and the Senate at this point, would eliminate the ability to do advanced re-funding bonds for any bonds issued after Dec. 31, 2017.”
Monday’s special called meeting was handled over the telephone from the conference room in the school district’s Purvis headquarters. Board member Carolyn Adams attended the meeting while the other board members voiced their opinions during the teleconference.