POTTSTOWN PA – Consider this the magic of municipal finance.
The Pottsgrove School District, during a bond sale Tuesday morning (Feb. 12, 2013), committed to borrow slightly less than $10 million to pay off old debt it incurred during 2008 and 2009, and saved itself $224,957 in the process. The reason: interest rates on the debt to be retired are higher than those of the new money it will receive.
Pottsgrove’s financial adviser in the sale, Jamie Doyle of The PFM Group, delivered the happy news to her client during the Board of School Directors meeting Tuesday night. The district actually did better than she predicted, Doyle added, by saving $58,000 more than initially estimated late last year. Directors unanimously accepted the results.
The weakened economy of recent years caused the Federal Reserve to substantially lower interest rates. That made borrowing more affordable, which the Fed hoped would in turn stimulate buying. Opinions on its policy’s effectiveness usually depend on personal politics, but it has proven to be a bonanza for public bodies with taxing authority like Pottsgrove, and for companies like PFM. Swapping out old debt for new is a big business.
Pottsgrove Superintendent Shellie Feola said the one-time savings will be realized in the coming 2013-2014 budget year, but she did not indicate how it will be used.
A division of PNC, which was one of seven bidders during the auction that saw 66 different bids entered, won the $9,995,000 sale with what Doyle called a “true interest cost” of 0.765 percent. Until the final numbers were in, bids had ranged from 1.14 percent to 2.48 percent, she said. “It’s a fantastic result,” Doyle exclaimed.
Pottsgrove helped itself in the sale, Doyle also said, by having its Standard And Poor’s credit rating recently raised from AA- to AA. It was the second such rating upgrade since 2005, Feola reported, and Doyle gave high praise to Business Administrator David Nester “for doing such a great job on the rating call.”
District solicitor Fox Rothschild LLP served as Pottsgrove’s bond counsel. The deal won’t be settled until March 19 (2013).
Related (to the Pottsgrove Board of School Directors’ Feb. 12 meeting):
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