Grayslake Elementary District 46's move to restructure debt in a way comparable to a mortgage refinancing is projected to save taxpayers nearly $60,000 annually starting in July.
District 46 received $10 million for school construction projects through what's known as a bond sale to investors. The district was scheduled to repay the $10 million principal and provide interest to the bond investors until June 30, 2026.
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But with a chance to reduce interest payments by more than 3 percentage points, District 46 board members last week agreed to restructure the debt. Officials said the outstanding debt will be paid off and replaced by proceeds it receives from another $10 million bond sale at the reduced interest.
"It's a win-win situation," District 46 board member Michael Carbone said.
With what amounts to being a lower-cost loan, District 46 taxpayers are projected to save $740,931 from the start of the new budget year July 1 until June 30, 2026 -- similar to what a homeowner experiences in a mortgage refinancing. That amounts to a savings of $57,000 per year on what District 46 will require from taxpayers to cover the bond-and-interest tab.
District 46 officials last September began considering a way to restructure debt to minimize the potential bite on taxpayers because of what they said is a lack of construction growth and declining property values. Officials said the debt repayments were based on an escalating equalized assessed valuation that hasn't materialized.
New estimates show District 46's equalized assessed valuation for 2012 to be about $774 million, well below the $1 billion forecast roughly six years ago.
Elizabeth Hennessy, a municipal finance expert with William Blair & Co. in Chicago, told District 46 officials the debt restructuring is proper because the interest savings after various costs will top 3 percentage points. She said interest rates that hit a 45-year low in January have been creeping up because of improved economic news.
"Bottom line, this is a good deal," Hennessy said. "We don't know how much longer (interest) are going to stay low. We expect, based on what the Federal Reserve chairman says, rates will remain low through the middle of 2013."
An advisory District 46 finance committee supported the debt restructuring and forwarded a positive recommendation to the school board. Victor Berner, a district finance consultant, said he didn't see any problems with perusing the move to achieve cost savings.