Groveport Madison refinances debt to save money
By Rick Palsgrove
Groveport Madison Treasurer Felicia Drummey recently told the Groveport Madison School Board on Jan. 26 that the district was able to save money by refinancing some of its debt.
“It’s real money,” Drummey said. “It’s real savings.”
She said the refinancing reduced interest costs on the new high school from 4.1% to 2.98%, representing an estimated total savings over the remaining term of the bonds of $5.3 million, or approximately $206,790 per year from 2023.
Additionally, the refinancing of the District Service Center Administration Building reduced the interest cost from 3.69% to 2.26%, representing an estimated total cash savings over the remaining term of $813,285, or approximately $62,000 per year from 2023.
“The average existing high school bond interest rate is 4.10%, and the January illustration reduces the rate to 2.98%, including refinance fees (bond attorney, underwriting fees, etc.) Drummey said. “Refinancing the debt saves our taxpayers money because less tax will have to be imposed to pay off that debt. Refinancing would save $5.3 million over the life of the debt. (or $206,790 per year) from 2023. Since the first market sale date is July 6, 2022, we are subject to interest rate risk as market conditions will change with inflation .
Drummey said the district service center funding was repaid in the form of a direct placement forward rate lock with Chase Bank at 2.23%, including refinancing expenses.
“It’s a bit less than the projected rate because we’ve entered into a rate lock-in agreement,” Drummey said. “Savings are $832,829 (or $64,000 annually) beginning in 2023. These savings directly reduce district operating costs, allowing us to reduce expenses or redirect debt savings to permanent improvements. long-term.
When asked why it was important to the community that the district proceed with this refinancing, Drummey replied, “Our goal is always to be entrepreneurial and to be good stewards of the resources that serve us. are provided. Just as a homeowner would refinance their home to reduce their monthly mortgage payment, the school district can refinance our debt to reduce the interest paid. These interest savings allow the district to reduce expenses or redirect savings to purchase more meaningful and sustainable assets or improve our facilities. »
Drummey said the refinance does not alter the existing term by lengthening or shortening it. It will expire (will be paid) according to the original schedule.
“When market conditions are favorable for refinancing debt, it’s the most responsible thing we can do on behalf of our ratepayers and the school district,” Drummey said.
When asked if this refinancing would impact the level of property taxes residents pay for debts, Drummey said refinancing the high school bond would be a direct reduction in property taxes assessed by Franklin County. for the repayment of this debt.
“However, because the assessed amount is distributed among all residents and businesses, the true impact on individual taxpayers may go unnoticed,” Drummey said. “Nevertheless, it’s the right thing to do because it benefits our taxpayers and the school district.”
She said there were no other similar debts in the district that could be refinanced at this time.
“Each debt instrument has guidelines that govern what type of debt is issued and when,” Drummey said. “For example, if a tax-exempt bond has a call feature, then the earliest we can refinance the debt is after the first call date. Otherwise, refinancing before the first repayment date would make the debt taxable for the investor, which is less attractive and results in higher interest rates. Accordingly, we are carefully timing the market to wait for refinancing after the call date, but before interest rates rise.
Drummey said district officials have worked hard to carefully manage and account for the resources provided to us.
“The district is in a stable financial position, so we believe we deserve an upgrade from ‘Good Quality’ (Moody’s A2/A3) to ‘High Quality’ Moody’s Aa3 or Aa2 credit rating,” Drummey said. “A better credit score is essential. Like an individual’s credit score, it determines the interest rate paid when borrowing money. We have submitted a credit rating application and plan to meet with the credit rating agency in May to present our financial situation and our case for an upgrade.