By Rick Palsgrove
Groveport Madison Treasurer Felicia Drummey recently told the Groveport Madison Board of Education on Jan. 26 that the district was able to save money by refinancing some of its debt.
“It’s real money,” said Drummey. “It’s real savings.”
She said the refinancing lowered the interest cost on the new high school from 4.1 percent to 2.98 percent, which is an estimated total cash savings over the remaining term of bonds of $5.3 million, or about $206,790 per year starting in 2023.
Additionally, the refinancing of the administrative District Service Center building lowered the interest cost from 3.69 percent to 2.26 percent, which is an estimated total cash savings over the remaining term of $813,285, or about $62,000 per year starting in 2023.
“The high school’s existing average bond interest rate is 4.10 percent, and the illustration as of January reduces the rate to 2.98 percent, including refinancing expenses (bond counsel, underwriting expenses, etc,” said Drummey. “The refinancing of the debt saves our taxpayers money, as fewer taxes would need to be assessed to repay this debt. Refinancing would result in a savings of $5.3 million over the life of the debt (or $206,790 annually) starting in 2023. Since the earliest date to sell at the market is July 6, 2022, we are subject to interest rate risk as market conditions will change with inflation.”
Drummey said the financing of the District Service Center was refunded as a Direct Placement Forward Rate Lock with Chase Bank at 2.23 percent, including the refinancing expenses.
“This is a little lower than the projected rate because we entered into a rate lock agreement,” said Drummey. “The savings is $832,829 (or $64,000 annually) starting in 2023. This savings directly reduces the district’s operating costs, thereby allowing us to reduce expenses or redirect the savings on debt toward long-term permanent improvements.”
When asked why was it important to the community for the district to do this refinancing, Drummey replied, “It is always our goal to be business-minded and be good stewards of the resources we’re provided. Just like a homeowner would refinance their home to reduce their monthly mortgage payment, the school district can refinance our debt to reduce the interest being paid. This savings on interest allows the district to reduce expenses or redirect the savings to purchase more meaningful, long-lasting assets or improve our facilities.”
Drummey said the refinancing does not change the existing term by lengthening it or shortening it. It will expire (be paid off) as per the original schedule.
“When marketing conditions are favorable to refinancing debt, it’s the most responsible thing for us to do on behalf of our taxpayers and the school district,” said Drummey.
When asked if this refinancing will have any impact on the level of property taxes residents pay toward the debts, Drummey said the refinancing of the high school’s bond will be a direct reduction of property taxes assessed by Franklin County for the repayment of this debt.
“However, because the amount assessed is spread among all residents and businesses, the actual impact on each taxpayer may go unnoticed,” said Drummey. “Nevertheless, it’s the right thing to do, as it’s beneficial to our taxpayers and the school district.”
She said there are no other similar debts the district has that can be refinanced at this time.
“Each debt instrument has guidelines that govern the type of debt issued and when,” said Drummey. “For instance, if a non-taxable bond has a ‘call’ feature, then the earliest we can refinance the debt is after the first call date. Otherwise, refinancing before the first call date would make the debt taxable to the investor, which is less attractive and translates to higher interest rates. As a result, we carefully time the market to wait to refinance until after the call date but before interest rates rise.”
Drummey said district officials have worked hard to carefully manage and account for the resources we’ve been provided.
“The district is in a stable financial position, so we believe we are worthy of a credit rating upgrade from ‘Good Quality’ (Moody’s A2/A3) to ‘High Quality’ Moody’s Aa3 or Aa2,” said Drummey. “An improved credit rating is essential. Like an individual’s credit rating, it determines what interest rate is paid when borrowing money. We submitted a credit rating application and we expect to meet with the credit rating agency in May to present our financial position and case for an upgrade.”