CLEARFIELD – The Clearfield school board heard a presentation Monday night about borrowing options for its school building projects.
The district asked PFM Financial Advisors LLC to prepare borrowing options for the Clearfield Area Junior-Senior High School and Clearfield Area Elementary School projects.
The estimated cost is approximately $2,790,898, which is stemming from energy savings projects to be completed by the McClure Co.
Wes Hall, PFM senior analyst, said rates are still below the 10-year historical municipal market average, and it is a good time to enter the market for borrowing.
When he visited the board six months ago, he said it was right before a drastic uptick in market rates. He said it was mostly due to the election, Federal Reserve’s raise in rates in December and the general view of the economy strengthening.
“We have since seen them slowly come down though,” he said. “We have probably made up one-third to one-half of the increase that we initially had at the end of last year, and the trend is overall still going in our favor.”
Hall subsequently presented a financial analysis and a competitive “dual-track” process for a bank loan Request for Proposal or competitive Internet bond sale.
He said this offered the flexibility of comparing the bank loan RFP results to current market bond rates, and there would not be any cost to issue a bank loan RFP for comparison purposes.
He said if authorized to proceed, they would send out an RFP to a network of smaller local and larger regional banks, and give them two weeks to prepare proposals.
Any submitted proposals would be analyzed by the financial team, and it would determine which one makes the most sense – bond issue or bank loan.
Hall presented three, different new money options with all having a principal of $2.950 million and first settlement in July.
Option 1 proposed a “level” structure over a 15-year term with a three-year phase-in period. After three years, there would be level annual debt service payments over the term of the loan of approximately $250,000 through 2033. After three years, total local effort would be around $2.7 million through 2026 but would eventually drop off to $2.4 million through 2033.
Option 1’s interest and millage equivalent would be $824,238 and 1.62, respectively. Hall said usually when there’s a higher upfront millage impact, there are lower interest costs.
Option 2 proposed a “modified wrap” structure, and similar to the first option, it would be over a 15-year term. However, it would push the principal back a little further because in 2027, the district has an existing drop-off in debt.
Hall said it would push back more of the debt, so when the district combined the proposed local effort with the existing local effort, it would be level through 2033. He said while the upfront millage equivalent would be lower at 0.89, delaying payback of the principal would increase interest costs to $1.079 million.
Option 3 proposed a “tight wrap” structure, and it would be over an 18-year term. Hall said this amortized the minimal amount of principal in the initial years until the district’s drop-off in debt in 2027.
Then, it structured the new debt service, so when it’s combined with the old debit service, it would be level $2.56 million annually. Hall said it would have the lowest upfront budget impact of about a half of a mill but because it pushed the principal further out, it would increase the interest costs to $1.403 million.
He encouraged the board to select the option that best fits its budget as it sits right now. Later in the meeting, Business Administrator Sam Maney recommended the board go with Option 3, while it has the least upfront budget impact.
“It’s the most affordable now,” he said. “I don’t want you to get caught up in the numbers.” He told board members that they could contact him with any questions before next week’s meeting, and if he didn’t have the answers, he would get them.
Hall said the board could authorize the financial team to proceed May 22 at the earliest. If given, they would send out the RFP the next day, and have them due June 6. They would compare them to the bond market, recommend either the bank loan or the bond issue to the board and seek to lock in the sale June 26.