Cary Grade School Board President Tells How to Cut High Interest Debt

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:

D26 AppleThe 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.


Cary Grade School Board President Tells How to Cut High Interest Debt — 4 Comments

  1. As taxpayers have noticed, refunding / refinancing bonds at a lower interest rate typically does not result in lower property tax bills.

    There are additional measures that can be taken.

    Cary District is accelerating the payment of principal, resulting in lower interest payments to bondholders.

    As a general analogy as to the power of such a strategy, go to a mortgage calculator and compare total interest payments for a 15 and 30 year mortgage.

  2. Thank you very much!

    I will distribute your post to the Woodstock D200 Board as well as the recently formed ‘Facility Review Committee’.

    At that point, doing nothing differently will clearly indicate intent rather than ignorance of options.

  3. The Cary Elementary District 26 PowerPoint presentation for the proposed Fiscal Year 2017 budget dated August 29, 2016 provides more insight into the bond management strategies described above.

    FY 2017 is July 1, 2016 – June 30, 2017.

    Additional key metrics are included.

    Page 4 (of 11) of the presentation:

    Revenue Assumptions:

    In developing the District’s FY17 Proposed Budget revenues, the following assumptions were implemented:

    Enrollment: 2,226 (9 Month ADA)


    Levy Collection Rate: 99.7%



    0.8% for Levy Year 2015 (88% of the levy budget)

    0.7% for Levy Year 2016 (12% of the levy budget)


    Debt Service:

    2011 Series Bond Refunding

    – $400,000 annual Sinking Fund

    – $250,000 cash Injection


    State Categorical Payments (4 Payments):

    – 1 from FY16

    – 3 from FY17


    Foundation Formula for General State Aid:

    – Foundation level at $6,119 times ADA

    – Fully Funded, as the 99th General Assembly passed Senate Bill 2047 (SB 2047) which was signed into law as Public Act 99-0524 Stopgap Budget.

    http://www.ccsd26 > Departments > Finance & Operations > Financial Presentations > 8/29/16 Board of Education Meeting – FY17 Adopted Budget

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