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New Kensington-Arnold considers refinancing

| Friday, July 25, 2008

The school board may refinance existing debt and assume more in an attempt to pay for capital projects and prevent future tax increases.

The district] is in debt about $5.5 million, according to bond underwriter Joseph Muscatello of the firm Boenning and Scattergood.

Muscatello said now could be a good time for the district to refinance bonds to take advantage of low interest rates. The district could save up to about $200,000 by refinancing, which Muscatello said is within the range considered wise for refinancing.

At the same time, the board is considering assuming up to another $4.5 million in bonds to pay for existing and future capital projects, including the high school roof replacement, artificial turf and renovations at Valley Memorial Stadium and the proposed multipurpose building.

If the additional debt is approved, Muscatello said it would be combined with the refinancing into one bond issue.

Muscatello said adding $4.5 million in debt would increase annual payments by about $225,000.

He said the district now pays about $2.6 million in annual debt service, about $900,000 of which is reimbursed by the state.

Muscatello also provided the board with rates ranging from $2.5 million in additional debt to $5 million, with annual payment increases of between $125,000 and $240,000.

The board likely would cap total debt at $10 million to stay in a lower bracket of interest rates, Muscatello said.

Chris Brewer, the district's bond counsel from the firm Dinsmore and Shohl, said the board will need to act fast to assume new debt for ongoing projects.

He said regulations prevent school districts from assuming debt once projects are completed, in order to prevent misuse of bond money.

"If you borrow money, it must be for forward-going projects," he said.

The board entered tentative agreements on Thursday to allow Brewer and Muscatello to begin the process to refinance and assume total debt of $10 million.

Muscatello said the district won't be able to lock in an interest rate for about a month until it's ready to proceed, so they'll still be able to back out if interest rates don't remain favorable.

Director Bob Pallone said the new debt would allow the district to pay for existing and future projects without draining the fund balance.

It also should prevent the need to raise taxes for future capital projects, he said.

Liz Hayes can be reached at lhayes@tribweb.com.

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