The parameters for issuance of $90 million in bonds to improve school safety, to take care of a backlog of maintenance needs and to finance two new major buildings were set Tuesday by the Durango School District 9-R Board of Education.
The maximum repayment cost for the bonds including interest and any premium on the $90 million principal cannot exceed a total of $149.2 million and no annual payment can exceed $8.215 million, which matches language voters approved in the Nov. 3 general election.
The bonds will mature Nov. 1, 2045.
Dan O’Connell with RBC Capital Markets, a bond underwriting firm and financial advising firm that will market the bonds, told board members the bond market “has been a premium market for quite some time.
“Rates are at all-time lows,” he said.
Offering a premium means an entity issuing a bond is willing to set and to pay above-market interest rates to investors if those investors are willing to provide more funds than the face value of the bonds.
Kim Crawford, 9-R’s bond attorney, said a premium could be offered without violating the repayment limits approved by voters in the Nov. 3 general election.
9-R Chief Financial Officer Samantha Gallagher also said the debt service structure of any bond sold will remain within the ballot parameters as voted and approved.
“Based on market conditions and historical sales over recent history, the district assumed there would be premium within any bond issuance as is typically done with other school districts in Colorado,” she said in an email to The Durango Herald.
She added discussions about the use of premiums were held with 9-R’s Long Range Planning Committee and with the Board of Education.
The date of the bond sale is targeted for the week of Feb. 15, with closing expected at the end of February.
After the meeting in a telephone interview, Durango resident John Simpson, a watchdog on government spending, said the limits set for repayments of bonds were based on an interest rate of 5%, a rate the market hasn’t seen in years.
“They came up with those numbers assuming a 5% interest rate, and interest rates have not been at 5% for decades, so I don’t know why they used 5%,” he said. “The going rate for bonds for the last couple of years has been 2%, ballpark, give or take a little above or below.”
Simpson estimates limits set for repayments legally would allow bond premiums to bring in up to an additional $30 million in premiums to the district, but at a higher interest rate creating a bigger bill for taxpayers.
Simpson said when the bonds are marketed, 9-R can still limit the interest rate to lower the total repayment costs to the taxpayer.
“There is still an opportunity for the district to make the right decision and sell these things for 3% or a little more than 2%. They’re not required to go to the full 5%,” Simpson said.