After finding out that it is ineligible to sell $10 million in voter-approved bonds until January, the School Board on Tuesday opted to sell half that amount.
At an emergency meeting, Superintendent Don Olson told trustees that because they decided in June to re-fund the initial $5 million bond sold in 2009 to get a better interest rate, the district is only authorized to sell $4.99 million in bonds this year.
Olson said Jon Isom, the district’s bond consultant, notified him Oct. 9 that if the district moved ahead with its original plans, it could lose its bank-qualified status. This news came after the board on Sept. 12 approved a resolution to increase property taxes to $54.50 per $100,000 of assessed property value in preparation of selling the $10 million bond.
The board approved the bond sale at its Sept. 26 meeting and had been scheduled to discuss a list of bond-funded improvement projects last week.
The district had planned to use the bond money for a series of improvements that include upgrading its phone and intercom systems and potentially replacing modular buildings with fixed structures at Del Norte High School. A community meeting was held following the emergency board meeting Tuesday to discuss planning and prioritizing projects.
“In the course of our due diligence (in the) Series B bond, the issue of bank qualified status was raised,” said Isom, who participated in Thursday’s meeting by phone. “If the district were to sell $10 million it would create a problem. It could invalidate the re-funded status of the earlier bond.”
Bank-qualified bonds provide an incentive to banks to purchase “bonds of all sizes,” Isom said.
Bank-qualified status also allows for better interest rates for taxpayers, according to Olson.
Board members weighed the pros and cons of breaking up the $10 million bond by selling $5 million now and the other half early next year. Isom reminded them that in waiting until next year to sell the full $10 million in bonds, the board took a chance on interest rates increasing. He also said the board could sell $5 million now and could wait to sell the other half until later next year if interest rates weren’t satisfactory.
But the board initially hesitated when it learned that breaking up the bond would result in a $25,000 cost of issuance fee. Ultimately, however, Isom said he would get the $25,000 cost of issuance fee reduced by $19,000 or $20,000.
Olson asked Isom to provide that guarantee to the district in writing.
Olson said not finding out about the district’s ineligibility to sell the $10 million bond until the day before a School Board meeting when Trustees had already approved the sale disturbed him.
He said he’s having to explain the circumstances to taxpayers whose rates will increase in December due to the district selling the second round of bonds.
“Regardless of what we decide tonight, Jeff (Caldwell) and I want to speak with you to get clarifying info to taxpayers,” Olson said, referring to the district’s assistant superintendent of business services.
Isom said taxpayers would still be paying the newly-approved rate of $54.50 per $100,000 of assessed property value even if the bond sale is $5 million instead of $10 million.
Voters approved the $25 million school facilities bond in November 2008. The first bond sale helped fund Smith River Elementary School’s new gymnasium. Olson said the gym’s new floor is expected to be installed in November.