Franklin Regional might extend bond repayment to free up $1.8M
Extending payments on debt from 2008 could net Franklin Regional School District officials up to $1.8 million next year — money that administrators have suggested putting away for a rainy day.
The bond is scheduled to be paid off in November 2014, but it requires a $2 million payment this fall.
Instead, financial advisers suggested spreading the remaining $2.6 million balance over seven to nine years.
Doing so would cost the district an additional $110,00 in the long run but enable the district to free up as much as $1.8 million for the next school year.
Superintendent Emery D'Arcangelo and director of finance Jon Perry suggested putting the bulk of that money in the district's capital-reserve fund, which is slated to be significantly drained during the next three years.
Perry said the rationale is that the district essentially could borrow money without applying for a new loan.
“It would leave us a solid three years of spending, and I'm comfortable with that level,” Perry said. “We could need to issue debt in the future; this could push that need away.”
This summer, work is expected to begin on a multiyear, $2.5 million replacement to the middle school heating, ventilating and air conditioning system.
Officials expect the capital-reserve fund to have about $5.4 million at the end of the school year; however, more than $6.7 million in projects are expected during the next five school years.
For the past several years, officials have set aside less money than normal for capital projects.
That's scheduled to change in the 2014-15 school year.
Board member Roberta Cook, who has struggled over decisions to extend debt in the past, said there is logic to Perry's recommendations.
“Sometimes, you have to engage in debt,” Cook said. “I will engage in debt for long-term, capital investments, not to buy groceries, to speak metaphorically. A school does have to have a roof that doesn't leak.”
Last month, officials approved a preliminary budget that included nearly a $1.1 million deficit, which would officials propose to balance with a tax increase.
Perry said he worries that the district — like many across the state — might have difficulty obtaining loans in the future.
State officials recently eliminated a program that reimbursed school districts for borrowing for construction projects.
More concerning to Perry is a proposal that would require districts to claim a portion of the state's pension liability, which totals $30 billion. Perry said that move could affect districts' credit rating.
“Is it wise to wait a year and see what happens (with the retirement fund)?” D'Arcangelo said. “I'm not sure what will happen when the dust settles.”
Board member Paul Scheinert said he understands the advantages to restructuring the bond, which refinanced of $8.75 million of debt that paid for projects at the high school and Sloan Elementary from more than a decade ago.
“If we don't pay this off now, the big advantage is to use the money without taking out new debt that could be more expensive and pay higher interest,” Scheinert said.
“Normally, I'm not inclined to do bond refinancing under any circumstances, but those points … it makes sense.”
Chris Bamber, a senior analyst with Harrisburg-based financial analysts The PFM Group, pegged the cost to refinance at about $110,00.
“There's a million scenarios we can run,” Bamber said.
“The bottom line is, there is some very flexible financing available for the school district.”
Board members have until November to decide what to do with the bond issue.
Daveen Rae Kurutz is a staff writer for Trib Total Media. She can be reached at 412-856-7400, ext. 8627, or email@example.com.
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