Nevada R-5 board approves advance refunding of bonds

Friday, September 16, 2016

Nevada Daily Mail

At a regular meeting of the board of education for the Nevada R-5 School District conducted on Aug. 10, at the school administration offices, a final terms resolution was approved unanimously by the board to proceed with a $4,625,000 advance refunding of the Series 2012 general obligation bonds. This refinancing was projected to save $615,389 in interest paid on the bonds, but the final results were actually improved by $22,430 to $637,819 of future interest expense by reducing the average interest rate from 2.78 percent on the existing debt to 1.47 percent for the refunding and shortening the final maturity by four full years from March 1, 2032, to March 1, 2028. The final term committee consisted of Monty Smith, president of the board of education, Dr. Tyson Beshore, superintendent of schools, and Larry J. Hart, president of L.J. Hart & Company, the district's municipal bond underwriter.

The action followed a workshop session reviewing several refunding plans and their impact on the district's ability to consider future facilities improvements without exceeding the total tax levy that existed from Fiscal Years 2009-10 through 2011-12 of $3.7517 per $100 of assessed valuation.

The refunding bonds were rated AA+ by Standard & Poor's Corporation because of the district's participation in the state of Missouri Direct Deposit Program. Hart indicated that the refunding bonds were reoffered on a priority basis to local banks and individuals through Edward Jones and Company and other interested broker dealers before selling them to investors outside the local area. The very low rates available as a result of "BREXIT," which is the acronym commonly used now in financial publications, that resulted from the voters in the United Kingdom deciding on June 23, to leave the European Common Market.

The Nevada R-5 School District was in an excellent position to capitalize on this sudden market event because the Series 2012 Bonds can be called at no penalty on March 1, 2017. The proceeds from the $4,625,000 refunding bonds will be used to purchase an escrow account consisting solely of U.S. Treasury securities that pay interest on the refunding bonds through March 1, 2017, when the Series 2012 Bonds will be prepaid. Smith stated that the wisdom of the district and its municipal bond underwriter to insist on a five-year optional redemption (call) provision is what facilitates this entire chance to save a lot of money for the taxpayers. "Without the five-year call feature this opportunity would not exist," Smith stated.

After discussing several refunding plans the board chose to proceed with the option that saved the most money and that positioned them the best for the possibility of asking the voters to consider a new elementary school at the April 4, 2017, or April 3, 2018, election if they can prepare adequately for it. The consensus of the board at the moment seems to be that a new elementary school is the next major facilities need. By selecting the strong accelerated option, the board of education was able to establish the debt service levy necessary to fund a $10,000,000 project at 32.16 cents per $100 assessed valuation, hopefully without having to seek a further increase based upon conservative estimates of higher interest rates that might exist at the time.

Dr. Beshore explained that increases in the state assessed railroad and utilities revenues due to pipeline and other new construction have gradually forced a rollback of 19.62 cents per $100 of assessed valuation from $3.6165 to $3.4205 in Fiscal Year 2015-16. The levy reduction reduced the operating reserves of the district by approximately $1,698,731 from Fiscal Year 2011-12 of $5,094,780 to $3,396,049 in Fiscal Year 2014-15. Most Missouri school districts maintain a constant total tax levy policy which shifts any rollback in the incidental fund to the debt service fund thereby preserving their ability to continue with higher priority facilities improvements without the need to ask for an increase in the existing debt service levy. Mr. Hart illustrated that the district can remedy that by adding 18.64 cents to the 13.52 cents debt service fund levy at the August 29, tax rate hearing for Fiscal Year 2016-17. With this levy adjustment the district's total tax levy for Fiscal Year 2016-17 was set at $3.7517 which is identical to the $3.7517 per $100 of assessed valuation in place for Fiscal Year 2011-12.

Several board members complimented Beshore and L.J. Hart & Company for developing the refunding plan. "Saving more than $637,819 of future interest expense is going to be very beneficial to our future programs and demonstrates the strong financial stewardship the board strives to achieve," Smith concluded.

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