Taxpayers will save on school bonds

The Sisters School District last week “refunded” the 2001 bonds it sold to finance the construction of a new high school. The move will save money, but not as much as the school board hoped when it decided to pursue this option in February.

Technically, the action is called an advance refunding of general obligation bonds. It’s similar to a homeowner’s mortgage refinance and is done for the same reason — to take advantage of interest rates that have dropped below those when the original deal was made. There is one significant difference, however. A refunded bond keeps the same time schedule for repayment, whereas a new home mortgage starts the repayment clock over.

In this instance, the Sisters bonds, sold in June 2001 for $21.5 million, were to be repaid over 20 years, concluding in June 2021. After refunding, the repayment schedule remains the same and retains the same payoff date.

Under the new terms, however, the district will pay $676,848 less in interest than it would have paid originally. If refunding could have been carried out when the subject was first discussed in February, prevailing interest rates would have saved the district an estimated $1.03 million. The delay was caused by a required process that involves getting approval from several authorities, including the state treasurer’s office.

A state law prohibits public bodies from refunding general obligation bonds unless doing so will lower repayment by at least 3 percent of the original principal. Interest rates had been hovering near that mark for several days when a representative from Seattle Northwest financial consultants called Thursday morning, April 3, to say that the target could be met.

Superintendent Ted Thonstad signed the necessary papers as authorized by the board.

The result will produce a saving calculated at 3.002 percent, a hair above the state’s minimum line.