In a comment reply to Mark under this article:

Cary Grade School Board Saves by Refinancing High Interest Bonds

Cary Elementary School Board President Scott Coffey shares his Board’s strategy to save taxpayers money.

You can read it below:

The District is utilizing 3 techniques simultaneously that results in the direct reduction of the debt service tax levy.

First, the District is refunding existing bonds that carry higher interest rates with new debt at a lower rates, which results in the interest expense reduction noted above.

Note, that the interest savings component at $620K only comprises a fraction of the total $3.0 million in savings.

Second, the District coined the term “Refund for Less” several years ago whereby it contributes equity at closing to pay down the amount of principal required to be refinanced.

In this case, it was $250K.

Third, we established a Bond Sinking Fund that will total $1.6 million that will be used to retire our 2011-C series bonds when they become callable on 2/1/20.

The District will contribute $400K in each of the next 4 years out of existing fund balance to provide the funds necessary for the early cash redemption in 2020, thus saving the taxpayers an additional $2.050 million on the debt service tax levy.

The District has used these strategies, along with the direct abatement of the Debt service levy, in each of the last 4 years now, resulting in roughly $4.7 million in taxpayer savings.

I can understand Susan’s incredulity at the press release, but we have been doing this for years.

And, from what I understand, no other districts are doing anything like this.

Apparently, the main reason is that the concept never gets past a district’s CFO to make it in front of a Board.

District Administrators have been trained to never concede any fund balance back to the taxpayers, whether its in the form of a Bond Sinking Fund, Refund for Less, abatement or flat levy, etc.

It just never made any sense to me in having a governmental body sitting on millions of dollars in fund balance, earning 0.2%, while having outstanding debt costing the taxpayers 4% to 6%.

This is the very definition of “Negative Arbitrage”, where your cost of capital exceeds your return on capital by 500 basis points.

If any other governmental board members in the area wish to get any more information on what we’re doing, I’d be happy to help.