$20M bond issue could cost cash-strapped Penn Hills School District $6.6M in interest
Penn Hills school officials Monday estimated that bonds to help pay daily expenses will cost the district $6.6 million in interest payments.
Despite a junk bond rating, Penn Hills officials closed on a $20 million bond issue with BNY Mellon on Sept. 30 to help pay day-to-day expenses.
The district is grappling with a deficit that officials this spring estimated is as much as $30 million.
Bond counsel Anthony Ditka of Dinsmore & Shohl said the district will pay 3.5 percent in interest on the bonds.
“This is the first step on a road to recovery,” Ditka said.
When bonds were first considered, the district had expected to pay 5 percent interest.
“This is a more successful first step than I could have imagined six months ago,” Ditka said.
The money will be repaid over 10 years, and officials said property owners in the school district should expect tax increases beyond the state-set index.
The bonds are insured and backed through the state intercept program, which pays lenders directly from the district's state subsidy.
The district finished 2013-14 school year with an $8.9 million deficit and received court permission in April to borrow up to $18 million to pay for day-to-day operations, but Ditka said the loan amount could fluctuate in negotiations to acquire lower interest rates.
Penn Hills schools tried to borrow in the spring, but the district's poor credit rating and lack of time led leaders to take out a $12 million bridge loan from PNC Bank. Superintendent Nancy Hines said the loan was repaid with real estate tax collections.
Even with an influx of money, district officials say they might run short again in the spring and could have to withhold vendor payments for a second year in a row.
In June, the board approved an $87.8 million budget for 2015-16. Hines said the district has $3.7 million extra in its budget so far this year due to conservative budgeting. About $1.5 million in savings came from the bond interest rate being lower than expected.
“We're not going to relax,” Hines said. “We're going to continue to be diligent (about spending).”
Kelsey Shea is a staff writer for Trib Total Media. She can be reached at 412-320-7845 or firstname.lastname@example.org.