Oxford taxpayers could realize a total savings of more than $1.5 million if the Oxford School Board decides to give the okay for the district to reinvest its payments on the 2010 Qualified School Construction Bond (QSCB) into an account with a higher interest rate.
According to Assistant Superintendent of Business and Operation Sam Barna, out of the district’s $104 million total worth of direct debt, bond debt and sinking fund debt combined, the 2010 QSCB is $15 million of it. Right now, the district has payments of $1,153,846 million per year which are currently invested in a money market account at an interest rate of .01 percent.
‘Right now those payments of a little over $1.1 million, almost $1.2 (million), go to pay off the debt by 2027, for this original 2010 QSCB,? Barna explained.
However, the pay off date could be sooner if the board agrees to make an investment in what’s known as a Forward Delivery Agreement (FDA).
‘Basically, it’s treasury strips that are secured by the federal government,? Barna added. ‘They earn a higher interest rate than a money market account.?
To help with the investments the district would be using the financial services of H.J. Umbaugh Associates.
According to a presentation by Mark Rochford, of Umbaugh, who spoke at the Dec. 9 school board meeting, the district could be looking at a ‘permitted investment? with a 1.25 percent interest rate or better, which would generate an excess of $1.17 million in revenue and allow the bond to be paid off a year earlier than scheduled. The early payoff would result in $340,000 savings to the district by reducing the interest expense on the school loan revolving fund.
To further explain, Barna used the example of a person paying on their mortgage for their home.
He explained if a person had a 4 percent interest rate on their current mortgage, which was a fixed rate, and had a savings account with a lower interest rate that they were putting money into to go towards their mortgage payment, they wouldn’t really be helping to pay down their debt.
But if they put their money in a different bank that offered a higher interest rate there would be the opportunity to pay their mortgage off quicker.
‘That’s what this is, but instead of it being a mortgage it’s a sinking fund bond,? he added.
Barna said the board will make a vote at the Jan. 6 board meeting. If agreed upon, he said they would be tied into a five year agreement and then they would have an ‘out clause.?
‘The only reason why you would consider getting out from a financial standpoint is really if the interest rates dramatically increase,? he said. ‘Instead of getting what is a higher rate now could be an even higher rate in the future, if the feds continue to raise the interest rates we can potentially get into an investment vehicle down the road which would earn us even more interest.?
At the end of the day for Barna it’s just about being able to save the taxpayers money. He is glad that they have an opportunity to save more in addition to the over $8 million they will save from the refinancing they did last summer.
‘I just think it’s important for us to be good stewards of the taxpayers? money and show them that we value them and continue to devote (our best) for not only our renewals every year but also our debt. Any bonds we’ve had in the past and any debt we plan to do in the future. We appreciate them valuing the schools because I think it’s a reciprocal relationship: Strong schools, strong community.?