The Sherman Independent School District’s board of trustees learned Friday that favorable bond rates could allow the district to decrease the planned tax rate increase related to the $176 million bond approved by voters in November or save for the future.
Sherman ISD’s financial advisor Joshua McLaughlin, with BOK Financial Securities, presented the preliminary financing plan for the issuance of building bonds during Friday’s special meeting.
The building bonds are responsible for financing the projects within the voter approved bond package for the district. After the $308 million bond failed in the spring election, voters approved a new $176 million bond package for Sherman ISD during November’s election. In addition to the new high school being constructed, the bond package will allow the current high school to be converted into a middle school. Piner Middle School and the new middle school will then each have room for sixth to eighth graders, thus allowing students to remain on one campus for a longer period of time than is currently possible.
McLaughlin predicts the $136 million fixed rate bond sale will procure an interest rate of 3.69 percent rather than the 4.5 percent interest rate that was communicated to voters prior to the election. He went on to explain variable rate bonds will be used to help lower borrowing costs as well.
“The variable rate bonds cannot exceed 25 percent of the district’s total debt portfolio,” McLaughlin said. “This will reduce initial borrowing cost by $1.2 million over the next three years.”
The $40 million variable rate bond sale is expected to have an initial interest rate of 2.14 percent. McLaughlin said the net bond payments between the variable and fixed rate bond sales are projected to be fully implemented at $32.9 million below the original cost communicated to voters.
Sherman ISD Assistant Superintendent Tyson Bennett explained this provides the district with two choices.
“You have to make a decision on whether or not you remain at the penny rate that was approved by voters or do you remain only at the penny point that you actually need to meet your bond commitments,” Bennett said. “When we make that decision in moving forward, we have to determine whether or not we can meet the demands of enrollment growth. We have to decide if we position ourselves to build bonding capacity for the future. We have to plan for that future growth so that we’re not sitting here in a situation, five years from now, and adding portable buildings.”
In November, voters approved a 21-cent tax rate increase to fund the bond projects. For those with a home valued at $100,000 this comes out to approximately an additional $17.50 per month. Tax rate increases were considered between 20 cents and 23 cents. The board settled at the 21 cent increase and said it would cover immediate concerns and allow some work to begin for the future.
The district is now tasked with determining whether to use the savings to lower the tax rate that was approved by voters or saving for the future. Considering the savings, there is the possibility for a 20 cents tax increase rather than the anticipated 20.9 cent increase.
Sherman ISD Director of Communications Emily Parks said the other thing to understand is the savings could provide flexibility to prepay bonds which would reduce the interest cost for taxpayers.
“We received a lot of the questions about how long it was going to take us to pay them off,” Parks said. “Because we have that opportunity with these savings it shortens that time frame.”
Board President Tim Millerick said the board is excited about the projected savings.
“The day that we passed the bond was certainly an important day for the community but I think today is even more important to this process and that the community can be quite proud about where we are at at this point,” Millerick said. “Today, we heard a couple of things that I think are special to our community. First of all, we are saving funds from other bonds beyond what we have already reported to the community. Secondly, the district’s position in the bond market is very strong due to the great work that has been done by the staff over many years. And now, the timing of selling these bonds would advantage us in ways that we can manage our funds that could save the district money in the long term.”
McLaughlin said all actions necessary to move forward with the sale of the bonds are expected to be complete by the end of January. The next step would be to price the fixed rate bonds at the beginning of February and the variable rate bonds 15 days later. The first set of money would be received March 1 and by March 22, the district would receive the $176 million in its entirety.
Millerick said the credit goes to all those who have participated in the bond process so far.
“These are all things you plan for and estimate for but the outcome today and the report we received is outstanding,” Millerick said. “All of the people that participate in the process no matter their role should be quite proud of where Sherman ISD is at this moment. I look forward to the next steps.”