District 113 is pleased to continue providing details of progress of the post-referendum capital projects. Our aim is to keep the community up-do-date with major news related to the projects. Please visit our school and district websites for more details.
The majority of bonds in District 113’s successful referendum have been sold. To date, $72,980,000 in bonds have been issued as part of the $89,000,000 referendum passed last April.
The referendum goes toward financing major capital projects at both Deerfield High School and Highland Park High School.
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Over the summer, the municipal bond market experienced an unexpected rise in interest rates. For example, rates on a 20-year bond increased 167 basis points between May 6 and September 12. As a result of the volatility in the market, a key financial decision was whether to issue the bonds up-front at current relatively low rates, or issue the bonds when cash would be needed for the capital projects. Although the latter would save on interest expense, it would expose the District to potential higher rates. A decision was made to avoid that rate risk by taking advantage of current interest rates.
The District 113 Board of Education began considering various referendum financing structures immediately after the successful April 9 vote, according to Tammie Beckwith Schallmo, managing director at PMA Securities, the firm managing the bond sales.
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Schallmo said a number of variables were incorporated into the board’s analysis, including the desire to:
1) sell a portion of the bonds with a 25-year maturity (to spread out the payment schedule over a longer term)
2) issue a portion of the bonds through the Illinois Financing Authority (to achieve state tax exemption in addition to federal tax exemption)
3) target retail (individual) investors (to allow the local community to invest)
Items two and three reduced the effective cost of a portion of bonds sold.
Monitoring municipal bond market conditions was also a top priority, Schallmo said. The District also was able to achieve favorable rates due to top credit ratings from both Moody’s Investors Service and Standard and Poor’s rating services. District 113 is one of only a few school districts in Illinois to have top ratings from both agencies.
To date, $41,530,000 of Series 2013A bonds priced on 6/18/13 and closed on 7/3/13 with a True Interest Cost (TIC) of 3.68%; $8,470,000 of Series 2013B bonds priced on 7/30/13 and closed on 8/21/13 with a TIC of 4.62%; and $22,980,000 of Series 2013C bonds priced on 9/12/13 and closed on 9/30/13 with a TIC of 4.73%. Back in May, the District estimated that the blended TIC for the total amount of bonds sold thus far would be 3.89%. The actual blended TIC for the $72,980,000 of bonds issued to date is 4.18%.
District 113 was able to sell bonds with a 25-year maturity upon obtaining approval from the Illinois State Legislature. In March of this year, the District asked State Representative Scott Drury and State Senator Julie Morrison to support House Bill 192, which would allow the District to sell those longer-maturity bonds (without passage of the bill, only maturities up to 20 years were allowed). Governor Pat Quinn signed House Bill 192 into law on June 28.
“As discussed in the (pre-referendum) study groups, a majority said to go longer with the bond maturity in order to match the useful life of the projects. Since the majority of the projects have a life expectancy well beyond the normal 20-year maturity, and well into 30 years, the group strongly recommended to stretch out the payments to better match those who would be accessing these improvements in the future,” Schallmo said. For example, when a new family moves to the area 15 years from now and sends students to the schools, they will be paying for the improvements at that time rather than all of the payments falling to current owners.
About $17 million in bonds remains to be issued. The Board plans to delay the issuance of these bonds until future years, when the proceeds are needed for construction, but may take action earlier depending on interest rate trends.
Schallmo said strong interest emerged from both retail and institutional investors. “Throughout the country, there aren’t that many issuers out there that have 2 triple-A credit ratings,“ she said.
At this time, the estimated tax rate associated with the currently issued bonds is 16.8 cents per $100 of Equalized Assessed Valuation (versus the original estimates of 16 cents presented to the Board in May). For a $300,000 home, a $0.168 bond & interest tax rate equals $158 in property taxes, versus $150 for a $0.160 tax rate.
Major construction work is slated to begin in the summer of 2014. Phase 1 designs, including new pool and PE areas for both schools, and renovations to HPHS 3rd floor A hall and DHS Q and East E hall (including significant HVAC renovations), are nearing completion. Please go to www.dist113.org to see articles and frequent updates on the implementation of the capital projects.
