By Myrna Trauntvein
Juab School Board members met as a local building authority to consider a resolution that will save the district money.
Marcus Keller, Assistant Vice President at Zions Public Finance Inc., Salt Lake City, met with the board in both the local building authority meeting and then in open meeting.
“By law, we have to have two separate meetings,” said Keller.
The board met in open session, made a motion to move into the local building authority meeting, left that meeting by motion and then reconvened in open session.
“We are considering adoption of a resolution authorizing the issuance and sale by the local building authority of Juab School District of not more than $7 million aggregate principal amount of its lease revenue and refunding bonds, series 2019, and related matters,” said Keller.
Following the local building authority board meeting, the board then acted on the following: “Consideration for adoption of a resolution of the board of education of the Juab School District, Utah, authorizing and approving the execution and delivery of a master lease agreement or amendment, thereto by and between the district and the local building authority of Juab School District, Utah; authorizing the issuance and sale by the authority of its lease revenue bonds, series 2019, in the aggregate principal amount of not more than $7 million; and related matters.”
The lower interest rates, said Keller, would work to the advantage of the district.
“Interest rates have been going down,” said Darin Clark, district business administrator. “We expected them to increase but the reverse happened—they went down.”
Clark said that other districts have been taking advantage of the lower rates by doing the same thing that Keller was suggesting.
School bonds are a way for school districts to borrow money. Investors buy promissory notes like school bonds. The school district gets cash in the short term and agrees to pay the investor back over a fixed period of time at a certain interest rate.
Keller said that the initial investor was fine with the proposal.
“This is a great opportunity for savings,” said Keller. “You could save $400,000.”
Bonds are similar to a mortgage on a home. To finance construction projects, the district sells bonds to investors who will be paid principal and interest.
The 2015 bond already has a low interest rate, said Keller. The plan was to take the mortgage attached to Nebo View Elementary and attach it to the West Campus bond, he said.
“The 2009 Bond is callable and so there will be no penalty fees,” said Keller. Callable means that the bond can be paid off earlier than the maturity date.
That bond would be refunded.
In 2018, he said, the bank was thinking that interest rates would go up but, in fact, they had decreased.
“The Feds have been slashing rates,” Keller said.
“We did think that they would go up,” said Clark.
After the change in the bond, said Keller, it would be seven to nine years before the bonds could be called.
However, obtaining a much lower interest rate would leave the district in good condition for that amount of time.
“You will be saving $400,000 and you will get a very attractive interest rate,” said Keller.
Following the approval of the building authority board, which is made up entirely of the school board wearing metaphorical building authority hats, the board met in open session where the same members, wearing metaphorical school board hats, also approved the resolutions.
According to state code a local building authority is a public entity and an instrumentality of the state, created by a local entity [school board] solely for the purpose of constructing, acquiring, improving, or extending, and financing the costs of one or more projects on behalf of the local entity [school district] in order to accomplish the public purposes for which the creating local entity exists.
Local Building Authorities may issue and sell bonds for the purpose of paying the costs of constructing, acquiring, improving, extending or refinancing a project.
School districts use bonds to borrow money to pay for all sorts of projects. Bonds are usually used to fund capital improvement projects like updating the heating system in a school or building a new school.
Mary Nielson, as a building authority board member, made the motion to pass the two resolutions required to allow the lower interest rates to be utilized and authorizing the issuance and sale of the lease revenue bonds. All board members voted in favor of the action.
“It’s awesome that you look out for us,” said Dr. Rick Robins, superintendent. “We appreciate your work in our behalf.”
After moving back into board meeting, acting as school board members, the board agreed to pass the resolutions.
“School bonds offer investors a big advantage over other types of bonds since they are exempt from federal taxation,” said Clark.
Normally, the IRS charges people a capital gains tax rate of 15 percent on income from bonds, so the exemption makes school bonds an attractive investment.
Keller said that 30 days from the date of publication is a contest period when those with adequate reasons may contest the action.
“December 27 will be the bond closing,” said Keller.
Principal and interest on the bonds are repaid over an extended period of time with funds from the debt service tax rate.