The details
During his presentation to the board Aug. 26, Assistant Superintendent for Financial Services David Johnson said defeasance is early retirement of debt, or in this case, early retirement of principal. Now there is room between the taxes the district levies and what is necessary for the principal based on a flat tax rate. That difference allows the board to approve the early retirement of debt for the 2024-25 school year, Johnson said.
Johnson equated paying off the debt early to paying off a residential mortgage early, which would allow the homeowner to save money by not having to pay interest on that debt.
District documents state the defeasance opportunity exists for portions of the Series 2015B through 2019A bonds. The district’s financial advisor, US Capital Wealth Advisors, recommended board action on a parameter order drafted by bond counsel, which helped determine the amount to be defeased based on tax collections during the 2024-25 fiscal year.
The district initially estimated and budgeted $18.8 million that would be eligible for defeasance, with the final amount being based on actual tax collections remaining after all 2024-25 scheduled debt has been paid, according to district documents.
Johnson said by paying off the $18.8 million early, it would save the district approximately $6 million in interest.
He said the debt is part of the district’s interest and sinking (I&S) fund, which is used for capital projects in the district. Maintanence and operation (M&O) funds are used for daily expenditures such as teacher salaries and utility bills.
Zooming in
Board President Cameron Bryan said two years ago the board made the decision to keep the I&S tax rate—which is $0.33 per $100 of valuation—the same so they could accomplish goals like paying debt off early.
“It’s better to be debt-free than have a whole bunch of debt, like all these other school districts around us that just sold billions of dollars worth of bonds and they’re going to be indebted out 30 to 40 years,” Bryan said.
Bryan added that should the district be able to defease other debt, they may be debt-free in six or seven years. If that happens, Bryan said it would translate to lower taxes for residents in the district.
“You take that $0.33 off [per $100 valuation], that’s huge,” Bryan said. “Now we’re talking real tax breaks.”
