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Federal Way taxpayers save money with school bond refinancing

The refinancing of bonds by Federal Way Public Schools will bring savings to taxpayers.

On March 27, the school board approved the refinancing of $12.9 million in bonds issued in 2004.

Sally McLean, assistant superintendent of business services, said this is good financial news for the school district.

“More than half of the current debt that the district has issued with voter authorization will be retired in the next 10 years,” McLean told the board. “That is really a very exciting place for us to be.”

For the $12.9 million in 2004 bonds to be refinanced, McLean said interest rates are driving the discussion on this action.

“When bonds are issued, just like when you refinance your home, a certain interest rate is attached to that particular bond sale. Interest rates fluctuate over time, and we have continued to see interest rates at a very low level,” she said. “The 2004 bonds we’re contemplating refunding were all sold with a five percent coupon rate. And certainly the market is offering interest rates at below five percent at this time,” she said.

In looking at refinancing these bonds, McLean said that the district will only consider the refinancing if there’s a minimum of a 5 percent interest cost savings. As it stands right now, the current estimate is 6 percent.

“Today’s estimates reflect a six percent interest cost savings, or roughly $800,000 in savings directly to our taxpayers,” she said. “When we started looking at this a month ago, the savings looked a little better at 9.9 percent, or roughly $1.4 million.”

McLean noted that if the market moves in an unfavorable direction for the district, the issue of refinancing the 2004 bonds may come back before the board in the summer. This is a relatively routine process for the past couple of years. McLean said the district has refinanced its bonds twice in the past three years, with an approximate savings of $3 million to taxpayers.

The sale of $12 million in bonds from the $149 million bond, passed by voters in 2007, was also approved by the board March 27. This sale will help finance the completion of the central kitchen at the district’s new Education Service Center building.

For the 2007 bonds, McLean touched on the previous history of bond sales from that group, saying the district sold $45 million worth in October 2007, $37 million worth in 2008, and $45 million worth in January 2010. She said the latest sale will have a relatively short shelf life.

“While this may seem coincidental, while we’re selling $12 million in new bonds, we’re only going to be borrowing that money for 12 years. These will be paid off in 12 years, which is a relatively short window, as most of our bonds are sold over 20 years. One of the reasons we’re able to do that is because interest rates are so low,” she said.

The resolution passed by the board delegated authority to Superintendent Rob Neu and/or McLean herself, in determining bids on the bond sales. The district is scheduled to open bids on April 12.

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