Lindbergh taxpayers save nearly $700,000 in Prop R bond sale

School district saves by seeking competitive bids for bonds instead of negotiated sale


Seeking bids for the sale of $32 million in bonds saved Lindbergh School District taxpayers nearly $700,000.

In November, voters agreed to extend the district’s current debt-service tax rate to 2026. Last week, Lindbergh officials ensured that tax-rate extension will be accompanied by the lowest competitive interest rate offered to the district.

The Board of Education unanimously approved a resolution March 13 authorizing the sale of bonds from Proposition R, a no-tax-rate-increase $32 million bond issue approved in November by 69.57 percent of district voters. Proceeds of the bond issue will go toward building improvements throughout the district.

Of the three bids the district received, Wachovia Bank National Association of Charlotte, N.C., had the lowest true interest cost.

Wachovia officials will purchase the bonds for $31,604,800 at an interest rate of 4.33 percent.

Besides the purchase of bonds, Wachovia last week paid $640,000 — or 2 percent of the $32 million bond issue — to the district as good-faith funds. The district’s contract with Wachovia is set to close Monday.

The district also received bids from New York-based Prager, Sealy & Co., which offered to purchase the bonds for $31,874,969.12 at an interest rate of slightly less than 4.35 percent, and New York-based UBS Securities, which made a bond-purchase offer of $31,600,320 at an interest rate of 4.46 percent.

While Prager, Sealy & Co. offered more money for the bonds than Wachovia Bank, Assistant Superintendent for Finance/Chief Financial Officer Pat Lanane said because voters approved the bonds from Prop R, the district is more interested in keeping residents’ taxes at a lower level than collecting an additional $270,000 for the bonds.

“The voters are the ones that gave us this great opportunity, and I think it’s very important to analyze it from their perspective,” Lanane said. “First of all, this is a great environment in which to be selling bonds and using that money for construction purposes. It’s cheaper now than in many, many times in the past. So, an average interest rate of 4.33 (percent), that is a very low interest rate. So I think you have to look at the big picture, and the big picture’s very positive.”

Under Prop R, the district’s debt-service tax rate will remain unchanged at 38 cents per $100 of assessed valuation, but it will be extended for a six-year period to 2026.

Work will begin this summer on projects directly funded from Prop R.

In February, the Board of Education also unanimously approved schematic designs for the redesign of Sappington and Kennerly elementary schools.

Sappington Elementary School will be redesigned in a model that will look similar to the original 1928 design of that school.

The Board of Education decided in February to retain much of that traditional feel by unanimously approving a $484,594 expense out of district reserves to retain Sappington Elementary School’s 1955 building for instructional use and long-term planning. District officials have said that keeping the 1955 building for classroom space would be cheaper than a newly constructed building at Sappington.

For Kennerly Elementary School, school-board members also unanimously approved the schematic design for its renovation, which will feature columns supporting its front entrance and upper floor and also a curved glass hallway.

The partial building replacement at Sappington Elementary was estimated last year as an $8.55 million project, and the minor building addition at Kennerly Elementary was estimated to cost $2.65 million.

Bids for both projects are expected to be requested in two rounds — one for foundation work and another for construction — during the spring.

Prop R funds also will be used for roof replacement at Crestwood Elementary School, Long Elementary and part of Lindbergh High School. That work is scheduled to begin this summer. Because of the necessary amount of roof replacement districtwide, the replacements will be divided to occur in three phases during the summers of 2007, 2008 and 2009.

Work also is slated for this summer on the installation of new, districtwide fire-alarm systems.

In addition, Prop R will fund a variety of other projects in schools throughout the district.

Two such future projects include classroom doors that lock from the inside for elementary schools and security cameras in most buildings.

To ensure that district residents who are providing the Prop R funds for these projects pay as low a tax rate as possible, district officials chose a competitive-bid process instead of negotiating bids with financial consultants.

“We had today what is termed an open, competitive bid,” Lanane said. “This is not a negotiated sale, even though 86 percent of the GO (general-obligation bond) sales in Mis-souri are negotiated. We have chosen not to do it that way.

“We feel that an open, competitive sale will get us the absolute best price. And I’ve argued with people and I’ve never heard of an argument yet that would say to me that you want to do anything else but this.”

The district employed Joy Howard, a certified independent financial adviser and principal with WM Financial Strategies, to advertise the Prop R funds as a competitive bid. She estimates contacting roughly 150 firms nationwide as prospective buyers.

Howard said to find the best bid possible, she does not advise any district or municipality to limit their bid search to only local or in-state firms.

“The question always comes up to me — should we re-serve a certain amount of the bonds just for the local buyers?” Howard said. “And my answer is ‘no’ because the number of people that are wealthy enough and want to buy these — they’re in $5,000 denominations — it can affect the interest rate and the ability to bid it out for the entire issue. So we don’t care about one or two or three buyers.

“What we care about is it’s not the district that really pays for the bonds. It’s the taxpayers. So we want to worry about every single household in the district.”

Lanane echoed Howard’s nationwide approach and reiterated that the district is more concerned with residents’ wallets than the well-being of local firms.

“Everyone worries about the selling end of it and getting the best deal for the taxpayers,” Lanane said. “Yeah, do we hope all the local buyers get a chance? Sure. But their interests are far outweighed by the taxpayers in general.”

In the spirit of keeping interest rates low for taxpayers, Lanane said he and Howard also chose to not offer premium bonds to any firm.

While he acknowledges that this restriction might have limited the number of bids the district received, Lanane said that without that limit, the true cost of the bond issue would have been much higher.

“We excluded what is a practice now known as premium bonds,” Lanane said. “The reason I excluded them is because the taxpayers pay more for these. And so, some bidders were a little unhappy that we didn’t allow these, obviously, because it’s more lucrative for them. But we did have that restriction and may have caused a couple of consortiums not to bid because they simply weren’t going to be able to make the money they normally would otherwise.

“But we all know exactly where the money comes from to pay for these. It comes from our taxes. So I don’t apologize for that at all.”

Noting that the difference between the highest bidder — UBS Securities — and low bidder — Wachovia — was $698,298, Lanane said that disparity is further proof that the competitive-bid process is wiser than negotiation.

“If you were to take that highest bid and made that a negotiated sale versus what we got at the lowest bid, that’s $700,000 savings to the taxpayers,” Lanane said. “So again, I just fail to see any argument for doing it otherwise. And they can rest assured that we got the best deal we could possibly get on our bonds on this day. And at the end of the day, that’s all you can really ask for.”