One-Day Bond sale wasn’t what school board thought it was

By Clay Schuldt

Special for the Argus

The May 22, 2012 Caledonia School Board meeting began with public comments by representatives from Ehlers, Inc. Joel Sutter and Betsy Knoche.

Sutter and Knoche were asked to return to the school to further explain the One-Day Bond and the effect it will have on the school’s budget.

In November of 2011 the Caledonia School District voted to approve the One-Day Bond for the first time. This is the third time representatives of Ehlers have visited the school board to explain to the public how the One-Day Bond has affected the tax base.

Sutter began by explaining the school loan history. In 2000 the school district was granted a capital loan by the state to finance part of the cost of a building program which included the construction of the middle/high school. The district received $14,134,000 in several installments in 2002 and 2003. Interest rates on this loan currently have an average rate of 4.13 percent. The term of the loan was determined to be a maximum of 50 years. In addition the district issued $9,515,000 in bonds to finance the remaining cost of the building programs, which were refunded through an advance refunding in 2007.

As of Aug. 1, 2012 the balance Caledonia owes in state loans will be $14,677,331. However if the maximum term of the loan is reached (Sept. 20, 2051) and the loan is not repaid it is cancelled. The “One-Day Bond” is a form of bond sale for capital loan districts. A One-Day bond allows a district to fund additional capital projects without causing an immediate increase in tax levies.

The approval of Caledonia’s One-Day Bond sale gave the school $495,000 in additional funds that were used to make upgrades in technology and building improvements. However, the One-Day Bond will extend the time required to repay the capital loan, which could increase tax levies in future years. Sutter and Knoche gave three options for moving forward.

• The first option was to do nothing in which case the school would begin to make annual payments greater than the interest on the loans and estimate the loan would be paid off by December of 2030. The total debt service levies over this period are estimated at $29,475,000.

• The second option would be to refund bonds to pay off the capital loan. Assuming a bond sale in July of this year the last payment on the loan would be in 2031. The district would no longer have to make the maximum effort levy. Total debt service over this period would be $28,864,000 which is $610,806 less than the first option and avoids large increases in future levies. However, the opportunity to issue one day bonds without tax increase is eliminated.

• The third option would be to not refund the capital loan and continue to issue One-Day Bonds.  This would provide an additional $16,830,000 in bond proceeds to the school. This would result in large increases in total debt services levies over time as the maximum effort levy would remain in place for 17 additional years and the district would be subject to all of the restrictions of the capital loan program for another 35 years. The total debt service tax levies from 2011-2051 would be $53,543,000.

Sutter admitted that there were an endless series of options Caledonia could choose from, but showed them the three basic options. In addition, the numbers are based on variables, such as property value, that could change over time.

Information a surprise

Overall, the school board was surprised to learn about the additional costs associated with the One-Day Bond.

As Board Member John Klug explained, “I think the assumption we had and I believe we were told that by passing the One-Day Bond it wouldn’t really cost anything.  We’re using money that was set aside already, but actually it is costing us money.”

This was a shock because the board was under the impression the One-Day Bond sale would not incur additional costs.

Board Member Kelley McGraw agreed with Klug commenting that before the election in November Ehlers had not explained the downside.

“You guys were the experts telling us what to do, and now you’re coming back and telling us ‘oops this is going to cost you,’ and so we look foolish to our voters.  We sold this bond idea that this wouldn’t have any adverse effect on us, and it does.”

Sutter defended the One-Day Bond saying it is the fairest way to raise money for the school as it does not affect the current tax levy, but admitted it wasn’t free money.

“I don’t think that is how it was presented,” commented Klug.  “I would have liked to see this information last year.”

Before the end of the school board meeting the board voted to hold a special school board meeting for Thursday May 31 to discuss the information presented by Ehler Inc., and decide on the next course of action.