Scott City School District adviser answers questions about bond issue

Along with other issues on the Nov. 4 ballot, voters in the Scott City School District will decide whether to vote for or against a no-tax-increase bond issue. If passed, $1.75 million in bonds would be issued for the district to take care of maintenance and other building improvements and prepay previous bond issues.

Tom Pisarkiewicz, vice president of L.J. Hart & Co., the Scott City School District's financial adviser, answered some questions via email about the bond issue.

Q: First, how do no-tax-increase bond issues work?

A: The no-tax-levy increase refers to the fact that the tax rate currently being paid each year is estimated not to increase.

Q: And specifically for Scott City, how is this being made possible?

A: The current 49-cent debt service fund levy is adequate to repay the $1,750,000 of new bonds by extending the levy seven years, but not increasing it above the current level. This is feasible due to growth in assessed valuation, interest savings of $461,099 on previous bond refinancings and very low interest rates in the current municipal bond market.

Q: Will they get operating capital out of this as well?

A: The district is currently required to utilize operating revenues to make the principal and interest payments on its Series 2011B Lease. This bond issue would allow the district to switch the lease payments from the operating fund to the debt service fund. The debt service fund levy is only allowed to pay principal and interest on the district's general obligation bonds. The district will free up approximately $806,175 of operating revenues over the next six years.

Q: What options did they have?

A: With the revenue generated by the 49-cent debt service levy, the district can prepay existing bonds and issue $1,750,000 of new bonds, or just continue to prepay existing bonds to save on interest expense and shorten the final maturity.

Q: What would happen if they did nothing?

A: The district would likely continue to prepay on the existing Series 2011A bonds to save on interest expense and shorten the final maturity, which is currently March 1, 2021.

Q: How common are these bond issues getting to be across the state and nation?

A: Due to the very low interest rates and the need for safety and security improvements, bond and lease financings are common across the state.

Q: Have they become more popular in recent years?

A: With school districts, there is always a need for capital improvements, so it is difficult to say bond issues are becoming more popular. However, improvements for safety and security are definitely more popular.

Q: If the ballot question passes in November, how soon would the funds become available?

A: Funding could be available by January 2015 if the district wanted the money that soon.

Q: How would your role as underwriter work?

A: What we do as the district's municipal bond underwriter is help structure the repayment schedule and sell the bonds in $5,000 increments to multiple investors. When we sell the bonds, we will make them available to local investors first (banks and individuals).