AASD may borrow full cost
Counsel advises board to issue bonds for building project as soon as possible
The time seems ripe for the Altoona Area School Board to take out a loan for the whole amount of its high school building project, the board’s bond counsel said Monday.
And while the board originally planned to pay $25 million in cash and borrow $63 million through bonds for the $88 million project, current market conditions indicate interest earnings on the $25 million, if left in the bank, could offset the cost of borrowing more through bonds, said John McShane, managing director of Boenning & Scattergood.
Keeping that $25 million in reserve funds in the bank gives the board flexibility, Superintendent Charles Prijatelj said.
And it would help the district’s credit rating, McShane said.
Borrowing an additional $47 million through bonds and keeping the $25 million in the bank would ensure a better bond rating, McShane said.
Last year, the board issued $35 million in bonds for the initial phase of the $88 million construction project. McShane reinvested the proceeds from school district’s bond issue in the municipal bond market and was “ecstatic with the results of the sale.”
“The bonds were issued at a higher interest rate than the market, so the buyer sees higher interest rate; they pay more money in. When you do the math, the ultimate yield you (the board) are paying on the issue is 3.5 percent — greatly under the estimate we provided last year,” he said.
“We are ecstatic over the result of that sale,” McShane said.
Looking to issue bonds for the rest of the project, a recent change in the Federal Reserve system set the table for the district to secure higher investment earnings than previously estimated, he said.
“It gives us a chance to re-evaluate the money you need,” McShane said.
With the board borrowing at 3.5 percent, and McShane achieving a 2.8 percent return on the money, it could offset part of the projected cost of the project. It would keep the debt service schedule to pay off the project in 30 years.
“You would only need $82 million to fund this $88 million project. That’s where you stand today,” he said.
McShane recommended the board vote on a resolution at its next meeting to fund the full amount of the project as quickly as possible to get to the bond market.
A special board meeting is set for Monday.