Hoover school board to save $7.9 million by refinancing debt
The Hoover school board this morning voted to refinance almost $109 million worth of debt the school system issued in 2010, saving almost $7.9 million with a lower interest rate.
The board considered whether to borrow an additional $12 million to pay for some upcoming classroom additions, but ended up deciding to use money it already has in the bank.
Superintendent Kathy Murphy recommended against borrowing the extra money. Murphy said it would have been nice to have another $12 million to tackle upcoming projects and not pull money out of the school system’s reserve fund, but looking to the future, she believes it makes more sense to not burden the system with extra debt down the road.
Borrowing an extra $12 million now would have cost the school system $4.1 million in interest over the long term, according to Matt Adams, a financial consultant with Raymond James & Associates. And an accompanying action to level out debt payments would have cost another $4.8 million, Adams said.
Murphy said that total extra cost of $8.9 million is not something she wants the district to incur.
The Hoover school district had about $116 million in its overall fund balance at the end of November, records show. Financial projections show that total dropping each year in the near future, but it’s still a nice safety net should the school district need it, Murphy said.
Based on school population projections, the school district doesn’t expect to have to borrow more money between now and 2026 unless something unforeseen happens, Murphy said.
Tina Hancock, the chief financial officer for the school system, had recommended borrowing the additional $12 million and leveling out annual debt payments at about $12 million, but either option was OK, she said.
With the decision today to only refinance debt and not borrow additional money, the school system’s debt payments are expected to rise from about $12 million in 2019 to $12.9 million in 2020 and $13.3 million in 2026 before dropping to $10.1 in 2027.
School board President Craig Kelley said board members appreciated being presented with different options but ultimately decided it would be better not to borrow more money right now. They should be able to plan for the fluctuations in debt payments in the coming years, he said.
Murphy said she knows it was a difficult decision for school board members, but the end result is worth celebrating. “We just long-term saved significant money for this school district,” she said.
Over time, that savings of almost $7.9 million will lower the system’s debt payments by about $375,000 per year through 2040, Adams said. Capital One Public Funding has offered the school district an interest rate of $3.8 million, he said.
School officials will lock in that rate in the next few weeks and officially close on the refinancing on Nov. 26, according to a schedule outlined by bond attorney Heyward Hosch.