Financial rating helps $18M school bond sale

by Marianne Gasaway

An excellent Standard and Poors (S&P) rating and favorable bond climate helped the Clear Lake School District receive an extremely good bid on its sale of $18 million in general obligation bonds.  The bond issuance was approved by voters in March to support a variety of school building projects, as well as community wellness center done in partnership with the City of Clear Lake.

The School Board approved the sale of the bonds to Robert W. Baird & Co. Inc., of Milwaukee, Wis., during a special meeting held Wednesday, May 27.  The firm submitted the lowest of five bids for the bonds.  Its winning bid has a 1.94 percent interest rate.  Other bids ranged from 1.97 to 2.59 percent.

Matthew Gillaspie, from the district’s financial advisor for the bond, Piper Sandler, reviewed details of the sale with the Board.

“Congratulations to you guys, especially in this COVID-19 environment, on a really, really successful bond issue for your district,” he said. “Good luck with your project.”

Gillaspie explained the low interest rate will allow the district to save an estimated $2.1 million in interest over the 20-year span of the bonds.   

The original debt service estimate for the bonds had total interest cost at $6.7 million and total net spendable proceeds of $17.6 mil

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lion.  In reality, the district will pay an estimated $4.65 million in interest and has net spending of $18,852,000.

The district could save even more if it decides to retire the bonds early.

Gillaspie said the district will pay 5 percent interest on its bonds from 2021-2026.  When the bonds become callable in 2026, the interest rate will drop to 2 percent.  He noted some school districts choose to pay off their debt service in less than the 20-year bond amortization schedule using what is referred to as a surplus levy.  Funds from that designated levy may only be used for bond reduction.

In the early years of the bond service schedule the district will implement a levy of $1.91 per $1,000 of taxable valuation.  However, in its later stages the levy drops to $1.05.

“You will be in a good position to lower your tax rate or levy to pay off the bonds sooner,” said Gillespie, noting property values will likely continue to rise, bringing in additional tax revenue.

Clear Lake’s highly valued lakefront homes, help the community form “an extremely strong” residential tax base on a per capita basis, according to S&P Global Ratings, which gave the Clear Lake School District an AA- rating.  The firm also noted strong voter support for school initatives and strong operating results in recent years as the basis for its rating.

“The district finished fiscal years 2018 and 2019 with very strong surpluses,” the S&P credit opinion stated.  “These operating results were driven by expenditure adjustments and cuts, labor contract increases not exceeding the revenue growth provided by legislators, use of a cash reserve levy, and careful budgetary assumptions… The district has a strong financial position that we believe will remain strong even if operating shortfalls occur over the next two years.”

Gillaspie called the -AA rating the highest that most schools in Iowa could possibly expect.

“There may be one or two that can get to the next level at AA, but most schools would be in the A or A+ range in Iowa, so that you have a AA- is quite good,” he said.

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