A bond issuance that closes today will raise $114.2 million for new construction, safety and security upgrades, and repair of a backlog of maintenance needs for all buildings in Durango School District 9-R.
9-R’s Chief Financial Officer Samantha Gallagher said the bonds sold at a premium with an average interest rate of 4.21%, which raised an additional $24.2 million beyond the $90 million principal of the bonds.
Bonds were sold in 17 different issuances with interest rates of either 5% or 4% and maturities extending from November 2024 to November 2040.
John Simpson, a critic of the use of premiums in issuing government bonds, said 9-R should not have used premiums, which increase the interest rate on bonds.
Instead, he said 9-R should have confined the issuance to the $90 million sought in the November general election, and that would have resulted in bonds issued at closer to the market rate, hovering a few tenths of a percent around 2%. Issuing bonds at closer to the market rate, Simpson said, would save taxpayers millions of dollars over the life of the bonds’ multiple-decade maturity rates.
Ballot Issue 4A, approving the bonds, passed by a 72% to 28% margin.
The ballot measure said the total cost of the bonds could not exceed $149.2 million and the district could not pay more than $8.2 million annually for the bonds – all conditions that were met even with the premiums received by the district.
Gallagher said the total cost to repay the bonds will be $139.4 million and the highest annual repayment cost will be $7.8 million.
Also, the bonds will not increase the district’s current mill levy of 5.776 mills.
In an era of historically low interest rates, Gallagher said premiums have been used widely in the past decade by Colorado school districts to attract investors and to raise more money. She said no Colorado school district bonds have been sold in the past year without using premiums.
Bond underwriters, Gallagher said, estimated the actual interest rate that will be paid over time for the bonds will be 1.89% given anticipated inflation over the 20-year period when the last bonds will be paid off.
“A critical piece to understand is the time-value of money. A 4% interest rate in 2020 is not the same as a 4% interest rate in 2040,” she said.
Simpson said the district did not have to issue bonds at a premium.
“There was an option. It’s been presented as if this is the market, and there’s no option but to take a premium. But that’s not true,” he said. “You could choose to take a lesser coupon. And your premium would go down. This happens all the time. And it’s disappointing. It’s shifting of numbers, and it’s a matter of transparency.”
9-R School Board President Kristin Smith said the use of premiums was discussed before the vote on the bonds and the added money from premiums is needed.
She provided an email statement from the school board saying: “Our promise to taxpayers in the ballot language for a $90 million bond was that there would be no tax increase. We have kept that promise.
“We discussed premiums with our board Financial Advisory Committee and they unanimously gave the district and the board their support. They viewed these premiums as standard for these types of bonds.
“Our schools are in desperate need of capital funds for improvements. We are so grateful for the over 70% of Durango taxpayers who supported the issuance of a bond for 9-R to help us improve the educational environments for our students.”