Budget outlook positive for district

District could save $1 million on bond refinancing in early 2017

LANSDALE >> It’s early in the budget process, but so far the North Penn School District looks like it will stay within the state’s Act 1 index for increasing local property taxes next year — and could score savings from a bond refinancing at the start of 2017.

“We will have further discussion at our September committee meeting about passing a resolution that we are not to exceed the Act 1 index, which would necessitate a new budget calendar,”

said board member Frank O’Donnell.

O’Donnell gave the full board an update from the Finance Committee, which he chairs, and said the early revenue and expense figures paint a positive budget picture.

“Through the end of August, the district spent about $2.27 million less than budgeted. A portion of this positive variance will be recommended for transfer to capital reserves,” said O’Donnell.

O’Donnell and Director of Business Administration Steve Skrocki said the Finance Committee has started to talk about a way to score more savings: by refinancing roughly $22 million in bonds issued in 2011 at the start of 2017, to take advantage of low interest rates to reduce future payments by nearly $1 million.

“When people refinance their mortgage, they typically do it to save money because the rates are lower. This is no different,” Skrocki said.

“With the interest rates being very low, especially on the bond market, we thought it’d be a perfect opportunity to try to save the district, and its taxpayers, some significant dollars,” he said.

The 2011 bond issue was taken out to fund renovation projects at several district elementary schools, Skrocki said, and the refinancing cannot be done in calendar year 2016 because the district has already borrowed $10 million this year for renovations at Montgomery Elementary School.

“That’s about a $24 million project, so it’ll be a twopart transaction: we’ll be borrowing $14 million to complete Montgomery, and then do a refinance of the 2011 bonds,” he said.

Total long term debt, including principal and interest, adds up to roughly $116 million, according to Skrocki, and if the district chose to write a check tomorrow the cost would be roughly $98 million in principal. All of the borrowings last ten years, so each year when the oldest bonds expire, others are typically added to fund new projects.

Between now and the end of the year, the borrowing will be discussed via the finance committee and finalized by the board in December or January, depending on now interest rates look at that time. Current projections include assumptions that rates will rise 25 basis points between now and the borrowing date, which would still produce savings of roughly $1 million, and if rates rise 50 basis points the savings would drop to $750,000 to $800,000, he said.

“I can’t envision a scenario now, considering we’re only three months out, that interest rates would spike so dramatically in the bond market that we wouldn’t proceed,” Skrocki said.

The district’s total cash balance at the end of August was roughly $160 million, according to Skrocki, and of that total roughly $14 has been set aside for retirement costs and $2.7 million for health care expenses. That total balance will steadily decrease as the school year continues.

“The real estate tax collection discount period ends at the end of August, so a lot of people have made their payments, and that’s when we have the largest cash reserve out of the entire year,” he said.

“For the most part, real estate tax collection stops at the end of December, and since that’s our largest source of revenue, the cash burn, so to speak, accelerates once we get into January,” Skrocki said.

That cash balance will drop to roughly $45 million by the time new tax revenues start coming in next June, he said, and in the meantime the district will pursue short term investments for three, six, or nine months to earn some return while that balance is unneeded.

“We get .25 percent in our main checking account, but we look for other opportunities through CDs and other financial instruments. This is the time you want to invest some money, and we try to keep our investment short term, because we’re going to need that money later in the year,” he said.

State officials have announced a level of 2.5 percent for the 2017-18 fiscal year’s Act One index, which is the amount a district can increase taxes without having to seek a public referendum, and Skrocki said that number is up slightly from 2.4 percent in 2016-17. The board could choose to pass a resolution in the coming months that it will stay below the Act One increase, and doing so would mean the district does not have to pass a preliminary budget in January, but can proceed under a normal schedule to advertise and pass a budget in May and June.

“We’re confident we won’t need any more than the 2.5,” Skrocki said, “but once you pass the resolution, there’s no turning back.”

“You can’t say, ‘Whoops, it’s April, we changed our mind,’ but we don’t anticipate any need” to exceed the index, he said.

North Penn School Board next meets at 7:30 p.m. on Oct. 20 and its Finance committee next meets at 6:30 p.m. on Sept. 26, both at the district Educational Services Center, 401 E. Hancock St. For more information or meeting agendas and materials, visit www. NPenn.org or follow @ NPSD on Twitter.