Smart Money

It’s time for a brief lesson in one aspect of school finance, and not just because this lesson saves money for you, the taxpayer, although that is an excellent reason. It’s important to discuss because it is a good example of the many facets of running a school business.

We recently, and finally, had the opportunity to refinance a portion of our long-term building debt. In the process, and this is where you, the taxpayer, comes in, we will save slightly more than $940,000.

Here’s how it works: It’s like refinancing your house when interest rates become more favorable, which gives you better payment terms on your mortgage. You can either lower your monthly payment, or make the same monthly payment and pay off your debt quicker.

That’s what we did with the Pathfinder bonds, which were sold in 1998 to raise money for the school’s construction. This was the first opportunity to, in effect, resell those bonds at a more favorable interest rate to us. The original bond sale locked in the interest rate for a certain period of time, so the bond purchasers, the investors, could count on receiving a certain rate of return for a fixed number of years.

The original interest rate average on the bonds was 4.75 percent; our new rate is 3.41 percent. When we maintain our same monthly payment over the next 13 years, based on our current millage rate – the taxes you pay – we will have cut down the total number of years left on the debt.

The net result: a savings to you of almost one million dollars.

The bond debt we refinanced amounted to about $8 million. Our overall debt on all of our buildings is a bit over $14 million.

Will you see a difference on your property tax bill? Whether you see real savings will depend somewhat on your property value. We will pay off our debt quicker, and the millage rate you are assessed will gradually goes down a little faster. For example, the millage rate now is 3.4 mills; next year it goes to an estimated 3.2 mills. That would have been closer to 3.3 mills without the refinancing, and our interest rate would have been higher.

I also must point out that what we are discussing is our debt fund, not the operating fund. We cannot, by law, use money collected for building debt payments to run our schools, such as to pay heat, lights, utilities, or wages.

We are very pleased with the results of this bond sale. It is another way we are working to maintain the financial integrity of our school system.

John D. Kingsnorth
Superintendent
Fremont Public Schools
(231) 924-2350
jkingsnorth@fremont.net