Public school districts with bonds are feeling a new urgency to try to refinance their bonds before the potential passage of a new federal tax bill.
The U.S. House passed a bill on Thursday, Nov. 16, that would enact a $1.5 trillion overhaul of business and personal income taxes, if it becomes law. While the reduction of the corporate and personal income tax rates have generated the most attention, for schools one of the most topical parts of the bill is when a bond can be refinanced.
Under the bill, bonds could only be refinanced three months before the bonds are callable in order to reduce tax exempt bonds in the market. "Callable" means it can be redeemed by the issuer prior to the bond's maturity. The reason for "calling" a bond is usually about saving money. If interest rates have declined since the bond was first issued, a callable bond can be refinanced to a lower rate of interest.
Schools frequently finance their bonds to reduce the debt millage of a district and save taxpayers money. For example, Fennville Public Schools refinanced its bond for the third time in January, saving taxpayers $1 million and reducing the debt millage to 4.45 mills from the originally authorized 5.61 mills.
However, the tax bill proposal would reduce a district's flexibility in refinancing.
For example, Zeeland Public Schools' bond is callable in May 2020. Under the new tax bill, Zeeland wouldn't be able to refinance until February 2020, which means Zeeland district residents could be stuck with a higher debt millage for a longer period of time.
Zeeland and West Ottawa are aiming to refinance their bonds now and lower their debt millages in case the bill passes. West Ottawa's board of education voted on Monday, Nov. 20, to pursue bonding refunding within certain parameters. It's estimated that refinancing would save West Ottawa taxpayers $500,000, assistant superintendent of business services Jim English said.
"We'll now look at the market and determine if it makes sense to refund the bonds and when," English said. "Their authorization requires a minimum percentage of savings, which we would be able to meet at current market prices."
The Zeeland board of education voted on Monday to refinance its bond, which will lower the debt millage from 7.35 to approximately 7.0 mills, assuming all property values stay the same in 2018. This will save taxpayers in the Zeeland district approximately $860,000.
Zeeland Superintendent Cal DeKuiper said that normally the discussion would work through the business office and finance committee before going before the board for a vote, but the potential new tax bill meant it had to be a rush job. If the bill passes before Dec. 31, Zeeland would miss the window to refinance.
"We should not let a window of opportunity pass without due consideration for our taxpayers," DeKuiper said.
Dekuiper also said that, even with the rush, the district can change its mind prior to closing on the refinancing if in the best interest of Zeeland taxpayers.
