BY JANE MEGGITT
Staff Writer
ALLENTOWN – The Upper Freehold Board of Education unanimously passed a resolution at its Sept. 6 meeting to refund portions of its 2002 and 2005 bonds and discussed possible uses of the interest income.
In December 2002, the board issued $13.7 million in tax-exempt school bonds, and about $32.6 million in such bonds three years later.
According to the resolution, the board has determined that the current tax-exempt interest rate environment may enable it to realize going forward debt-service savings for the school district’s property taxpayers through refunding school bonds.
The refunded bonds would be a $1 million bond of 2002 maturing on July 15, 2023, and an $8.7 million bond maturing on Feb. 15, 2035, or any portion of either bond that is economically advantageous.
In the resolution, the board stated that it is in the public interest to accomplish the refinancing “for the health, wealth, convenience or betterment of the inhabitants of the school district.”
Anthony Pannella, the district’s bond counsel, attended the meeting. He told the board that interest rates are currently moving daily with large swings. He said the refinancing would take about three months, which he called “an eternity in the interest-rate market these days.” Pannella said he may be able to save a month by convincing the state to include the refinancing in the September approval process if the board passed the resolution that night.
Pannella estimated that the refunding would give the district about $475,000 in interest on the refunded principal.
“Right now, refunding is a total winner,” he said.
Pannella said the district has some flexibility in which fiscal year it wants to take the savings. He said the interest would be reflected on the capital side of the budget, not in operating expenses. He said the refund could be used as direct tax relief in that the debt service would get all the savings.
Pannella said the Local Finance Board is “fussy” about districts taking all the savings in one year and instead likes to see it phased in over time.
Board member Chris Shaw said he would rather have the savings given back to the taxpayers.
Business Administrator Viola Yosifon said that would make the tax rate jump up dramatically the following year.
Board President Joseph Stampe said the bond money earning interest is designated for the new middle school on Ellisdale Road. He asked Pannella what the legal limitations were in using the interest on the money for the board’s use.
Pannella said that when voters approved the referendum for the school property, they approved an amount that could not be exceeded. He said that investment income is considered a miscellaneous revenue and is required to be transferred to the general fund for debt service. However, he said there is an obscure provision in the state law that permits boards of education to have investment proceeds supplement capital projects. He cited two examples of towns that attempted to use the provision, one of which failed and one that succeeded.
Because of the delay with the new school project, Pannella said there may be an issue with the prevailing wage schedule. He said another election for residents to vote on possible increases for the school costs is not the best alternative if the board knows it has this investment income.
“It’s not coming from the taxpayer and is the most timely solution,” said Pannella. “It’s much cheaper than an election.”
Pannella said the investment money could only be used for the site on the ballot question. If the board decides to proceed with another site for the school, he said, it would have to go back to the voters for a new site and ask them for more money.
Pannella said that at this time, the voters have directed the board to build the school on the Ellisdale Road site.
Interim Superintendent Robert Smith said it has been suggested to the board that alternate school sites be considered, since Ellisdale Road has remediation and wastewater concerns. He said there would be expenses involved in having the district’s professionals do preliminary work on other potential sites.
Pannella told him that the capital projects fund cannot be used for testing alternative sites.
Yosifon later confirmed that members of the 2002 and 2005 boards of education had decided that any interest savings would be returned to the taxpayers and not used for any other purpose. She said that all interest has gone into the debt fund and returned to taxpayers each budget cycle.