Interest rates increase means Prescott could gain by investing referendum funds

Posted 4/26/22

On the flip side, note may need to be extended a year to meet ‘no tax increase’ pledge By John McLoone PRESCOTT – With passage of a $15 million referendum on April 5, the Prescott School Board …

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Interest rates increase means Prescott could gain by investing referendum funds


On the flip side, note may need to be extended a year to meet ‘no tax increase’ pledge

By John McLoone

PRESCOTT – With passage of a $15 million referendum on April 5, the Prescott School Board worked at its meeting Wednesday, April 20 to put together a plan with its financial advisor to get funds borrowed and earning interest in an euort to combat challenges due to inflation.

Lisa Voisin of Robert W. Baird & Co. appeared at the meeting, explaining options to the district, which pledged a no tax increase from bond payments to voters as part of its referendum plan. By a tally of 890-703, school district voters approved the referendum for “paying the cost of a school facility improvement project consisting of: roof replacement, capital maintenance, building infrastructure, systems and exterior building improvements at Malone Elementary School, Malone Intermediate School and Prescott Middle School, including electrical replacements, Heating, Ventilation and Air Conditioning (HVAC) replacements, asbestos abatement, compliance with Americans with Disabilities Act (ADA) updates and site improvements,” according to the ballot measure.

Voisin said it was a good election for districts with referendum questions.

“Your 56% percent passage was just great news,” she said. “I’m working 16 facility referendums, and I had 13 pass. I think 80% of the ballot questions got passed from facilities to operations. Congratulations all the way around.”

Interest rates are increas-


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-ing. That can be good and bad news for the district.

“I have never seen a volatile interest rate market like I’ve seen the last six weeks,” she said. “We’re still in a very good interest rate environment. It’s just not as good as it was a year or two ago. I see interest rates going up this year, maybe not as drastically as they have the last few weeks.”

She said her goal aligns with the district’s.

"My number one goal, and I have confidence that we'll meet it, is no additional tax impact,” she said. “We have to have integrity, and we have to make sure we meet that.”

The district finance team will be working with Baird to put together resolutions to get borrowing done in the short term. That means the district will have the $15 million in its couers, even as spending for projects will be done over the next several years.

“You borrow $15 million. You’re not going to spend that right away. You’re going to invest that,” Voisin said. “Now it's becoming more significant, the amount of money. We re ally want to focus on that and get the funds borrowed quickly. You’re talking $25,000 a month you could earn on that $15 million. That earnings can go toward projects. In the end, you’ll have more than $15 million to spend on projects. I would say hundreds of thousands of dollars if we do it smart and do it right.”

The district currently has a long-term credit rating of Aa3.

“That’s a really good bond rating for a district your size.

You were A1 in 2020. That upgrade on $15 million, saves you $125,000 on interest cost,” Voisin said.

She’s hoping to get the district to Aa2 by early June.

She said the district will start the process with a bond anticipation loan which gets funded quickly. The district will pass a resolution at its May meeting for the borrowing.

Voisin is hopeful that the district can borrow in the 4% range.

She said that the district may have to extend repayment to 16 years, rather than its original plan of 15. By state law, the district could repay in 20 years.

"We have flexibility to extend the debt maybe a year. We don’t want to. In a perfect world, we’d shorten it up a year,” she said.

Board president Mike Matzek asked, “To keep the promise of a zero-rate increase, if the rate is higher, we would just extend the debt another year?”

“That would be my preference,” said Voisin. “If your levy would be higher than the current year, I wouldn’t want that.”

On the project side of things, director of buildings and grounds Mike Hoikka reported to the board that he’s hopeful that outside projects – such as roofing and windows – can get underway this summer. Other things that require engineering and state permitting could take longer.

"Mostly exterior stuu, roof replacement, roof repairs, win dow replacement … mostly anything that’s exterior, it’s a lot quicker to write up bid packages,” said Hoikka. “We’ll tackle what we can. The majority of this work will be done in 2023.

Some of it might event get out to the end of year three, depending on lead times and labor.”

“A majority of projects will be done next summer,” Superintendent Dr. Richard Spicuzza said, noting that there is also divculty finding contractors and materials.

Hoikka said that with these big projects moving to referendum funding, the building and grounds crew will be able to devote budget funds toward other projects, such as converting high-use areas of the high school toward LED lighting, which would pay for itself in two years.

“We’d like to look at ways we can save some energy there,” Hoikka said.

He told the board the district devoted $160,000 toward long-term maintenance projects last year, such as track sealcoating and replacing water heaters with on-demand energy evcient water heaters.