Mehlville taxpayers to save $2 million with refunding of bond-like certificates

Outgoing state representative disputes Diehl’s quip regarding Prop P ‘overruns’

By EVAN YOUNG

The sale of more than $19 million in certificates of participation to refund certificates issued in 2001 was approved last week by the Mehlville Board of Education — a refinancing officials say will save taxpayers more than $2 million.

The board voted 5-0 to approve a resolution authorizing the sale of $19,610,000 in Series 2010 certificates of participation, or COPs, to refund some of the $36.9 million in certificates issued in 2001 to fund the first phase of the Proposition P districtwide building improvement program.

Board member Micheal Ocello was absent from the Dec. 9 regular meeting.

LJ Hart & Co. President Larry Hart told the board last week the COP refunding will save the district $2,275,836 over the next decade — an average of roughly $230,000 a year.

“We tried to set that up so it would be more or less level savings each year …,” said Hart, whose firm served as the district’s underwriter for the transaction. “The certificates will be callable with no penalty in April 2014, which is roughly a three-year time frame. You’ll have an opportunity to then improve on what we have. Your average interest rate right now is about 5.01 percent. It would drop to 3.58, which is just under a one-and-a-half-percent reduction.”

He added, “As you probably have followed in the news, the overall financial markets have been turbulent the last few days, and we suffered some from that. Our interest rates are maybe a quarter of a percent higher than what we had hoped a couple weeks ago to be able to do.

“But with that call feature, you’ll be able to recover that in the future if rates are better, and also if we don’t have a market where rates are better, you’d still be able to prepay if you want to convert it to another type of instrument. So you have that option. You don’t have to use it, but it’s there for you.”

Mehlville received an A+ rating from Standard & Poor for the COP refunding, one of the highest possible ratings available for that kind of transaction, Hart said.

Regarding the investment rating, board Vice President Venki Palamand said, “I remember we talked about a few meetings ago that we were one of the best in the state, or one of the highest levels in the state. Is that the same …?”

Chief Financial Officer Noel Knobloch said, “There are a few that are AA and AAA. Those are the ones that have higher reserve balances. But in the past couple years we’ve added to our reserves so that’s kept it positive, and obviously that can go the other way if you start dipping into your reserves. You could lose your A rating, which would cost you more in your interest rates in the future.

“So it is critical — particularly if we’re going to be looking at a refinancing again next year — that we still try to maintain that A rating because it could cost you a quarter or 50 basis points.”

LJ Hart & Co. Vice President Heather Mudd noted that certificates issued in 2002 relating to Prop P will become refundable beginning in 2012, and Prop P COPs issued in 2004 will be callable in 2014.

“So if interest rates remain at relatively current levels, next year you would have the opportunity to do a similar financing,” she said. “And the 2014 call date for this (Series 2010) structure was chosen partly because your 2004 issue will be callable in 2014. So at that point you might have the opportunity to combine those or do some type of restructuring.”

The 2002 and 2004 COP issues totaled roughly $46.8 million and roughly $12 million, respectively.

Mehlville voters in November 2000 approved Prop P, a nearly $68.4 million bond issue funded by a 49-cent tax-rate increase. However, a final budget revision approved by the school board in December 2005 raised the Prop P budget to $89,137,440 — a roughly 30.3-percent increase — more than $20.7 million over the nearly $68.4 million building program originally envisioned.

Board President Tom Diehl told the Call that the more than $2 million in total savings from refunding the 2001 COPs could be viewed as the board recapturing some of the excess Prop P costs.

“Motion carries 5-0, and let it be noted that we’re recouping $2.5 million of Walt Bivins’ overruns,” Diehl quipped after last week’s vote, referring to the outgoing Republican state representative who served on the school board from 1997 to 2003.

Reached for comment Friday, Bivins said, “They weren’t my cost overruns. I wasn’t even on the board when those cost overruns were done. I was not happy when I learned the board had decided to interpret what we thought we passed as a $68.4 million bond issue … as being able to use 49 cents to fund whatever they wanted to fund. So I think Tom is in error when he calls it my cost overruns.”

Bivins recently has taken issue with some of the current school board’s actions. He was one of five former board members who this fall opposed the district’s unsuccessful 88-cent tax-rate increase proposal, Proposition C.

Late last month he sent a letter to Missouri Attorney General Chris Koster asking for an opinion on the board’s unanimous decision to leave former board member Karl Frank Jr.’s seat vacant until the April 5 election.

But Bivins called the board’s decision last week to refinance the 2001 Prop P certificates “good business.”

“I think it’s a good thing that they do that to save the taxpayers money,” he said. “I think it was a smart thing to do.”