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updated: 2/22/2011 11:19 PM

Warren District 121 to pay down debt with rebate cash

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Warren Township High School board members agreed Tuesday night to pay down construction debt with about $560,000 in rebate money from a federal stimulus program instead of continuing to hold the cash or using it for something else.

Board members voted 6-1 in favor of applying the Build America Bonds rebates toward loans Gurnee-based Warren District 121 obtained for building projects at its freshman-sophomore and upperclassman campuses.

"It is the right decision today," Warren board President John Anderson said.

Created in 2009, Build America Bonds was a stimulus program promoted as a way to spur construction and encourage public-sector borrowing for projects. The program, which expired Dec. 31, offered local and state governments a rebate of up to 35 percent of their interest payments, effectively lowering the cost of borrowing even below the rate for tax-exempt municipal bonds.

Governments that choose to spend the rebate money elsewhere or just keep it forego those low-interest benefits, and in some instances they end up paying more for the loans than taxpayers were told to expect, financial analysts say.

While not prohibited, a U.S. Treasury Department spokeswoman said it's rare for public agencies to use the rebates for something other than paying down debt.

District 121 became the first Illinois school system to use the Build America Bonds program in April 2009, when it took a 20-year, $24 million loan to fund part of the $30 million building projects.

Although a similar loan could have been obtained through traditional means at 4.48 percent interest, officials deemed Build America a better option because its slightly higher initial interest rate would drop to the equivalent of 3.82 percent after the district got the rebates.

But in October 2010, a majority of Warren board members decided to set aside the $560,000 in rebates Warren got last year in case it was needed to replace state aid payments that may not arrive in 2011.

District 121 board member Charles Crowley Jr., the lone dissenter at Tuesday night's meeting, said, "It may not be the most financially astute" move to use the roughly $560,000 in rebates collected last year to help pay down the $24 million loan.

When questioned by Crowley, Anderson said Warren could do what it wants with the rebates including placing the money in the general fund.

Officials said Warren this year has received another Build America Bonds interest rebate of about $250,000, but that is being held in a special bank account instead of being immediately applied toward the construction debt. A second $250,000 rebate is expected later in the year.

Anne Noble, senior vice president of public finance at Stifel, Nicolaus Co. Inc., a St. Louis-based investment banking firm, said diverting rebate money away from bond repayment is not sound policy. She has set up Build America loans for several Illinois school districts.

Gurnee Elementary District 56 is one of Noble's clients that borrowed through Build America Bonds in December. District 56 Superintendent John Hutton has pledged that all rebates from the federal stimulus program will go toward paying down debt from construction projects.