State, St. Michael-Albertville School District Team up to Save $62 Million

With one role call vote-and a lot of work in advance–the reduced the school district’s bond payouts by an estimated $62 million on Monday evening.

Back in 1991, the district financed much of the construction of its new high school–now Middle School West–through a fixed rate, $9.8 million capital loan. According to the law at the time, the balance of the loan was to be forgiven after paying on it for 50 years.

“At the time it was a good deal for the school district to get this loan,” said Joel Sutter, a financial planner at Ehlers & Associates. “It was probably the only way at that time that you could afford to build the high school that you needed with your growth.”

The problem now, Sutter said, is that the fixed rate of 6.5 percent is much higher than the current going rates for such loans, and interest on the loan continues to accumulate. In addition, the laws have since changed and loan forgiveness has disappeared. Now, as interest has accumulated, the loan sits at $29 million and growing.

 Fortunately for St. Michael-Albertville and a handful of other school districts that were in similar situations, the state’s last Legislative session brought about a way to stop the cycle. The school district was able to pay off the original loan amount of $9.8 million, paying the state off with a lower interest rate loan of 4.1774 percent.

State Sen. Amy Koch (R-Buffalo) was a leading proponent for this measured to be included in the final bill, and she said the move is a win for all involved.

“I'm thrilled that we could enable this action with this piece of legislation,” Koch said at the district's last board meeting. “It actually helps the state's financial picture as well, since these funds were originally not expected to be paid back in the short-term.  This is a great example of how the state and local school districts can work together to make sound financial decisions in the interest of our students and taxpayers.”

The savings on local property tax levies will take place from 2013-2038, with the lion’s share of the savings coming in the last eight years.

“I don’t think I have ever come close to saying on a refunding bonds sale that this will reduce property taxes by $62 million,” Sutter said, saying the next closest he’s ever been involved in provided a savings of $8-9 million.

The district received an A1 credit rating, which Sutter said could have been in the higher AA category if not for the district’s high debt burden and the area’s shrinking property values.

“Until you pay off more of your debt [the new high school and Fieldstone bonds], and/or the district has grown, it will be hard to get up into that AA category, even though your district management of the budget has been very exemplary and you have a strong fund balance,” he said. 

Sutter added that this new loan will make it much easier for the district to refinance their existing debt, which he said will generate even more savings for taxpayers over the next several years.