Fort Mill Times

Fort Mill School board moves to pay down debt

One bright spot to emerge from the uncertain economy is the opportunity for the Fort Mill School District to save nearly $1 million.

As credit has tightened and the bond and stock markets struggle with record declines, some investors are looking to liquidate assets, including bonds issued by state and local governments. In recent days blocks of Fort Mill School District's installment purchase plan bonds have shown up on the secondary bond market, selling for as little as 79 cents on the dollar, according to the district's financial advisor for bond transactions, Mike Gallagher.

"Yesterday, $1,028,000 worth of the bonds were put out for 79 cents on the dollar," Gallagher told school board members last Wednesday during a special breakfast meeting.

Gallagher, who works at Ross Sinclair and Associates, alerted the district to the bonds up for sale when his company saw them hit the market at 89 cents on the dollar last week. He added that Ross Sinclair had already bought a small block of the bonds.

"The bond holder is willing to take less than face value for the bonds to take the liquidity out of it now," Assistant Superintendent Leanne Lordo said.

Lordo suggested the board tap into its impact fee fund to purchase the bonds. Impact fees of $2,500 are collected on all newly built homes in the district, and the money can only be used to fund new school construction related to growth or to pay down debt from construction costs. The fund currently contains approximately $8.5 million. The district has collected more than $24 million in impact fees since 1997; It typically moves roughly $2.5 million each year into a reserve fund, Lordo said.

Lordo suggested spending $2 million from the impact fee fund to purchase bonds. Initial projections, based on the 89 cents to the dollar price, show purchasing the bonds now will save the district at least $920,404. Of that, $174,225 will pay off some of the $75.6 million principal amount of the bonds and $746,179 will cover interest.

The total amount of savings the district realizes will depend on the actual cost of the bonds when the district buys them. After Gallagher spotted the initial block of bonds, another block hit the market at the 79 cents on the dollar price.

The district's bond attorney, Theo Dubose, said the district could save $60,000 to $62,000 a year in interest on the bonds. The district approved the IPP bonds, totaling $75.6 million, in 2006. An IPP is similar to a mortgage.

The district is currently paying $3,937,000 a year on the bonds in two installments of $1,968,900, Lordo said. Right now, those payments are only covering interest on the bonds. The district will begin paying off the principal in 2012; the annual payments will exceed $4 million

The plan required a series of approvals from several groups. First, the district's bond trustee had to agree to let the district buy back the bonds early, which it did, Dubose said. Otherwise it would be 2016 before the school district could have purchased any of its bonds back. The school board also had to approve it, which it did, unanimously Wednesday. On Thursday, the Fort Mill School Facilities Corporation Board met to approve the plan. The corporation was set up through the IPP process.

"So there's no possible downside?" Superintendent Dr. Keith Callicutt asked Dubose before the school board voted.

"I don't see any," Dubose replied.

Board member Michael Johnson characterized it as a tax cut for the taxpayers in the district because it will decrease the amount of money the district will have to pay off over the long term.