ASD Votes to Refinance Bonds to Pay for Renovations

Christopher Brewer, attorney with Dinsmore and Shohl in Pittsburgh, explains the legalities of re-funding the bonds that were originally procured to build Armstrong Junior-Senior High School to the ASD school board.

The Armstrong School District (ASD) school board last night voted to re-fund (refinance) bonds that were used for construction projects in order to get more money for future renovation projects.

ASD Solicitor Lee Price said the Board is taking advantage of low interest rates that will give cash to the District for renovations without extending or increasing annual repayment amounts.

“The bond payments that we will make in the future are the actually slightly less that our current payments. Our debt payments – like a home owner mortgage payment – will remain the same. It will be the same length of time, but what will be different is that we’re going to have cash available to use for any future capital improvements and long-term maintenance without having to borrow anything in the future.”

“If you said you had a house and you refinanced your mortgage to make the payment amount less, the money you saved in doing that, you would get back and you use it to build a deck on your house. Here, our payments are going to stay the same, but we’re going to have an influx of cash to do major capital things that have to be done. Our roofs only last for so long, for example, and typically districts borrow to do those kinds of things. We won’t have to borrow now in the future. Administration has been monitoring the changes that have occurred since the beginning of this year and the bond markets were dropping to our advantage.”

ASD Director of Finance Sam Kirk believes ASD will net over $11 million from the re-funding of bonds.

ASD Director of Finance and Operations Sam Kirk originally anticipated seeing a cash payment of $7 million from re-funding the bonds. However, PiperJaffray Investment Banker James (Chip) McCarthy reported to the Board last night that they have seen a significant drop over the past week that has resulted in additional savings of $500,000.

“We are anticipating a little over $9 million cash-out from refunding of this bond issue,” Kirk said. “The sale (of the bonds) is scheduled for next Wednesday. We are crossing our fingers that in the next seven days, the rates stay as attractive as they are now.”

Kirk originally had identified approximately $7 million in renovations that needed to take place in District properties. He said there are enough projects to spend the additional $2 million.

As previously reported in the Kittanning Paper, ASD will address the heating and cooling systems at Dayton Elementary School, and update security and surveillance there.  Administrators have already identified a new roof will need to be installed at Lenape Elementary.

“We will spend close to $3.5 million next summer just on those two projects,” Kirk said.

He also identified the roof at West Shamokin High School that will be due for replacement as well as heating/cooling/ventilation issues there, and HVAC updating at West Hills Intermediate and Primary complex.

“There are driveways and other smaller projects on our long-term list that now, since we will have the funds, we can move them up on the schedule,” he said.

As Price previously stated, Kirk has been watching the bond market closely since the first of the year.

“During the budget process, I started informing the Board that this was going to happen. We just didn’t know it was going to happen this fast. A savings of 11.6% is phenomenal. Normally, if you see two or three percent, you start to consider refunding. So for it to be this high of a savings, it doesn’t make any sense to sit and wait any longer.”

There are two different bonds that were discussed at the meeting. The first one was the $80 million original bond of 2010 that previous boards procured for renovations of high schools that was eventually used for construction of Armstrong Junior-Senior High School. The second bond was issued in 2013 that will see approximately $45,000 annually in repayment savings.

“We are taking the cash available from re-funding the $80 million bond. The 2013 bond will see a reduction in the amount of the payment. We decided not to take cash from the 2013 bond, but rather just reduce our payments,” Kirk explained.

Once the bonds are re-funded, there will be a period of time that will lapse before the money will be needed to pay the renovations. Kirk has already begun the process of finding appropriate places to invest the money to create even more savings over the life of the bonds.

“Normally districts have to borrow money to do high maintenance projects. We will be able to do these projects and not need to come to the taxpayers to fund them because of the money that is available to us because of current interest rates,” Kirk said.

Kirk will now prepare a cash flow analysis to determine when money will be needed and how long of a term it can be invested.

“We will put some of the money in short term investments and other money in long term investments depending on the outcome of the cash flow analysis,” Kirk said.

“It’s very good for the taxpayers,” Price added. “We won’t have to figure out a way that we can borrow money. We are refinancing to have the same payments but get an influx of a large amount of money that can be put aside for those capital projects.”

“It is very good for taxpayers,” ASD Solicitor Lee Price remarked about the re-funding of the bonds. Because of lower rates, the District could receive as much as $11 million that will be used for renovations.