bond sale

The Owatonna Public School Board approved the sale of voter-approved bonds for construction of a new high school and renovation of the existing facility Monday night. RBC Capital Markets was the lowest bidder, offering a 2.25% interest rate that could mean an average savings of 27% on the estimated corresponding tax contribution for a home in the district. (Bridget Kranz/People’s Press)

<&firstgraph>OWATONNA — At its regular meeting Monday night, the Owatonna Public School Board approved a sale of building bonds for the new high school to the lowest bidder at an interest rate of 2.25%.

<&firstgraph>According to municipal advisor Jeff Seeley, the district received nine bids with interest ranging up to 2.48%. The winning bidder was RBC Capital Markets.

<&firstgraph>Although Seeley, who works for the financial advisory firm Ehlers, was already estimating a lower-than-anticipated interest rate when he visited the school board last month, he said percentages continued to trend downward over the past few weeks. At officials’ January meeting, board members approved a resolution providing for the sale of the bonds, with Seeley projecting that interest would come in somewhere in the 2.75 to 2.95% range.

“A few weeks ago, I was involved in three bond sales. One was a 25-year and we got 2.42%,” Seeley told those gathered. “One was a 20-year and that was 2.33% and one was a 21-year at 2.45%. Even in the last few weeks, these bond sale rates have come down.”<&firstgraph>

<&firstgraph>Over the 25-year lifespan of the district’s new bonds Seeley added that the drop in interest should save the schools’ tax base nearly $26 million.

<&firstgraph>Voters approved a $112 million bond referendum this fall, including $104 million for construction of a new high school and $8 million for renovations to the current facility. After the bond sale, Director of Finance and Operations Amanda Heilman explained that the district should have $1 million more to work with for the project, as well.

<&firstgraph>“The amount that will be deposited on March 19 to our construction funds after underwriter costs and legal and fiscal costs will be $111,686,784. Interest earnings are estimated at $1,442,621 so that would provide the district with just over $113 million for the project,” she explained via email.

<&firstgraph>In terms of interest, Heilman said that prior to the election Owatonna Public Schools had been using a projection of 4% for the interest rate.

<&firstgraph>“We had to conservatively estimate our interest rate, because obviously there was a long period of time before we would actually sell the bonds,” she said at the meeting.

<&firstgraph>“When we were looking at the election, we took the current rates and added about three-quarters of a percent and set it at around 4%,” added Seeley. “Since that time, rates on this type of bond have come down almost a full percentage point, plus you had that three-quarter-percent cushion in there.”

<&firstgraph>The district was also still estimating this December when it was required to set its levy for taxes payable in 2020. This year’s corresponding taxes will still be less than initially thought before the election, but still more than it will be in future years given where rates are at now that the sale has been finalized.

“<&firstgraph>You actually had to set this tax levy last December for these new bonds,” Seeley explained at the meeting. “So what we did is we took the current rate back then, which was quite a bit lower than the estimate pre-election and we set it based on that. Well, it came in even lower.”

<&firstgraph>The corresponding annual tax contribution for district residents will come out to roughly $153 on a $175,000 home for the 25-year duration of the bond. Before the election, this number was estimated at $211. For a $400,000 home, the tax would drop from $549 to $397. For a $100,000 home, it would decrease from $99 to $71.

<&firstgraph>Overall the drop in interest rate will mean a roughly 27% decrease in the corresponding tax contribution projected prior to the November referendum.

<&firstgraph>Board members having approved the sale to RBC Capital Markets unanimously Monday night, Heilman explained that the next step will be a closing on March 19, when the funds will be transferred over to the district.

Reporter Bridget Kranz can be reached at 507-444-2376. Follow her on Twitter @OPPBridget. ©Copyright 2020 APG Media of Southern Minnesota. All rights reserved.

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