Fort Smith School Board members on Monday (July 9) received their first look at bond issue numbers following voter approval of a millage increase on May 22. Estimates from four options total anywhere from $204.708 million to $212.649 million await over the 30-year finance period.
The numbers, presented by Little Rock-based Stephens Inc., include $121 million in principal and the rest in interest ranging from 3.67%-4.42%. The millage increase proposal estimated 4% interest.
Under bond repayment terms, the district would borrow $121 million and implement a five-year plan for all construction projects, which include over $35 million in safety and security measures that will be the priority over other spending projects.
The four options presented by Stephens — revealed at a work session by Fort Smith Public School (FSPS) Chief Financial Officer Charles Warren — included two scenarios where the district borrows the money across two loans, a $90 million and $31 million, and two scenarios where it receives all the money at once.
The two 90/31 options are so the district can take advantage of current interest rates before the Federal Open Market Committee (FOMC) — the monetary policymaking body of the Federal Reserve System that sets rates impacting bond issues — revisits the possibility of increases. FOMC announced one increase on June 12 “and signaled that two additional increases were on the way this year,” Warren noted, adding that based upon a review of current market conditions, “Stephens anticipates interest rates to continue to grow.” FOMC will meet on Aug. 1, Sept. 26, Nov. 8, and Dec. 19.
“We are balancing two significant factors that contribute to a financing paradox. On one hand, we want to ‘lock’ bond interest rates as early as possible (as all indicators point to continued rising interest rates for the next three years). On the other hand, we want to ensure we can meet bond issue requirements to spend all the funds within three years of the bond issue date,” Warren said.
On Monday, FSPS administration recommended an option that would borrow $90 million at an estimated rate of 3.67% in September and $31 million at 4.17% in September 2019. If the Board approves a resolution at its July 30 meeting, it will result in total principal and interest (P/I) of $204.708 million with a first payment due date of Feb. 1, 2019. Warren told Talk Business & Politics each loan would have two payments per year — one strictly for interest and the other for principal and interest. The maturity date would be Feb. 1, 2049, on both. Annual debt service would run $6.815 million combined.
If the Board chooses the administration’s preferred option, it would have an “aggressive timeline” with a closing date of Aug. 15, 2018, Warren said.
He continued: “We are confident that we can meet the three-year spending requirement by August 15, 2021, for this amount. The remaining bonds can be issued in the fall of 2019. We believe we can spend the remaining funds within the extra year (2022). This schedule also allows us flexibility to delay the $31 million bond issue if more time is needed to spend the funds and/or if rates remain below these projections.”
FSPS Deputy Superintendent Dr. Terry Morawski confirmed on Monday he feels confident the district will be able to meet its previously released construction schedule under the terms.
Other possibilities include the following, all with Feb. 1, 2049 maturity dates.
• One $90 million loan at an estimated 3.91% in November and a $31 million in November 2019 at 4.42% with a total P/I of $211.109 million. Annual debt service would be $7.07 million.
• One $121 million loan at an estimated 3.91% in March 2019 with a total P/I of $206.327 million. Annual debt service would be $6.88 million.
• One $121 million loan at an estimated 4.16% in March 2019 with a total P/I of $212.649 million. Annual debt service would be $7.09 million.