The Nugget Newspaper - News and Opinion from Sisters, Oregon

The Sisters School Board has decided to “refund” the bonds that were sold in mid-2001 to build a new high school. Like a homeowner refinancing to take advantage of low interest rates, the board hopes to wind up paying less on its loan.

At its February 15 meeting, the board heard that Seattle-Northwest Securities, which handled the original bond sale, has recommended the refunding. Four possible scenarios were presented.

The one that Superintendent Ted Thonstad said would be the district’s most likely choice would produce interest savings of $1.03 million over the 16 years remaining for full amortization. This would reduce the district’s property tax rate for this purpose by four to five cents per $1,000 of assessed value.

The board’s unanimous vote in favor did not represent a final commitment to go ahead with refunding. It only started the process of preparing a refunding plan and getting approval from necessary authorities, including the state treasurer’s office. The process can take two months or longer.

Thonstad advised the board that bond market conditions might change during this period so as to reduce or eliminate the expected benefit of paying off the existing bonds. But the board can opt out at any time up to the sale of new bonds.

The only real risk of going ahead now, the superintendent said, is that the district will be prevented from doing another refunding for 10 years.

If rates fall significantly below current levels in the future, the board will have sacrificed the opportunity take advantage of even more savings.

Although no one brought it up during the discussion, the bonds to be refunded are the infamous bonds that produced significant embarrassment for the school board and central office administrators about a year ago.

The sale of $20.5 million in bonds took place in June 2001. The board at that time expected to earn $1.9 million in interest on bond proceeds invested before they were needed for construction. After a prolonged debate, the board agreed to use $1 million of the earnings on the school building and to give the other $900,000 “back to the taxpayers” in the form of early repayment of principal and slightly reduced annual bond payments.

But in late 2003, the board learned that what it had been tracking as interest was instead only cash flow. Officials determined that actual earnings would turn out to be closer to $1.2 million. Board members explained the error in an apologetic open letter to the community published in The Nugget March 24, 2004. They acknowledged that the $900,000 they had hoped to give back to the taxpayers would not be realized.

Ironically, if the bond refunding now being contemplated meets current estimates, the benefit to the taxpayers — a saving of more than $1 million — will be even better than the one originally planned.