A nice surpise: Bond deal means school board can avoid tax hike

Pittsburgh Post-Gazette

There will likely be no property tax increase next year in the Mt. Lebanon School District, despite previous fears of a sizable hike. It’s all due to changes in the global landscape over the last two weeks.

Mt. Lebanon school directors on Tuesday unanimously approved a preliminary budget for next year that calls for $96.6 million in spending with no change to the current real estate tax rate of 23.93 mills.

That’s because the district was the unexpected benefactor of a fortuitous dip in interest rates due to recent world events, such as the conflict in Afghanistan, tensions in North Korea and an upcoming election in France, according to the district’s financial adviser.

Just before the vote on the budget, the school board unanimously approved refinancing nearly $58 million in bonds, which were sold this week to Bank of America Merrill Lynch at a savings to the district of about $7 million, said Timothy Frenz, public finance director for Janney Capital Markets. Estimates just weeks ago called for much more modest savings of $4 million or less.

“It went much better than I hoped,” said Mr. Frenz, adding that the bond sale produced a lot of bids. “It was a feeding frenzy.”

As interest rates fell, the bond market rose, and the district found itself with much higher gains, offsetting what was expected to be a tax increase of at least 0.25 mills.

“The district benefited from a perfect storm,” Mr. Frenz said.

Mr. Frenz told the board the district would receive $3.8 million in an upfront cash payment, then $900,000 per year for the next three years. By the fourth year, the district would receive $500,000 to lower its debt obligations.

The original bond of nearly $60 million in 2009 was used to finance a major renovation project at the high school.

Earlier this year, the board approved preliminary spending plan that called for an increase of 0.83 mills, but they directed superintendent Timothy Steinhauer to find a way to reduce the burden on taxpayers.

“We have a zero millage increase and for that I am extremely grateful and very pleased,” said school board member Daniel Remely. “We were very, very fortunate today with the bonds.”

Despite the district’s good luck, Mr. Remely said he felt disappointed that the board didn’t take a more active role in reducing the possible tax increase and instead left the heavy lifting to Mr. Steinhauer.

“That’s what bothered me the most,” he said.

But other members disagreed.

“We should not try to micro-manage the district through the budget,” member William Cooper said.

“This was a huge win for our district,” said school board member Lawrence Lebowitz. He and other members said they would not have supported program or staff cuts.

The board is expected to approve the final budget May 22. It can be viewed on line at www.mtlsd.org.