PHOENIXVILLE — When and how to borrow money for an upcoming capital building projects was the topic of discussion at a recent Phoenixville Area School Board meeting.
After a presentation from an academic advisor at the board’s Oct. 17 meeting, Jamie Doyle, of Public Financial Management, laid out two scenarios the board could follow.
“There’s no right or wrong answer here,” Doyle said. “This amounts to a business decision proceeding with the next piece of your financing.”
With construction of a new early learning center and East Pikeland Elementary School joint building looming at an as-yet-undetermined location, Phoenixville will need to take out bonds at some point.
As Phoenixville Area School District Executive Director of Operations Stan Johnson explained, recent discussions in finance committee have centered around whether the district should borrow that money as early as the end of this year.
“The good news is, long-term fixed borrowing rates are still below average, so it’s still a great time to borrow,” Doyle told the board.
According to Johnson, a “very, very preliminary estimate” of the project’s cost is $60 million, plus the cost of the land acquisition.
Johnson said those numbers are very early estimates for the 1,000 student building because they haven’t been able to do too much design work without a property in place.
Most of the discussion at the Oct. 17 meeting surrounded whether the board should move forward with approving taking out bonds now or waiting later on to borrow closer to the time of actual construction.
Doyle’s first scenario entailed borrowing immediately to lock in interest rates on a $9.8 million bank-qualified loan. To do that, by federal regulations, the district would need to have a “reasonable expectation” that it could spend at least 85 percent of the money within three years of taking it out.
The second scenario involved borrowing closer to the time of construction to reduce the “cost to carry” the first option would incur.
“But the considerations of that are you have interest rate risk of the $9.8 million depending on how your needs work out,” Doyle explained. “We may not be able to break it into bank-qualified pieces as we had planned.”
As such, that could lead to higher interest rates.
Borrowing now would have a $28,000 cost to carry, Doyle said.
When asked what administration’s stance was on the issue, Johnson said there was a “good case” to borrow the money before 2013 ends.
Superintendent Alan Fegely and Doyle agreed.
“Your strategy for a long time, going all the way back to your 2006 borrowing and maybe even a little before that, has been to take advantage of and fully maximize your bank-qualified limits each calendar year,” Doyle said.
Board President Josh Gould said if borrowing doesn’t begin this year, spending on construction later on could force the district to take out a large non-bank-qualified loan.
“That’s what your strategy has avoided up to now,” Doyle said.
Board member David Ziev said he felt rushed to make a decision
“I also thought we had more timing and thought this would be discussed at the next financial meeting before we got to this point,” said board member Irfan Khan. “I can see benefits to both sides. I have some trouble with cost to carry.”
According to Doyle, since 30 days typically span from the “sale to settlement” on the bonds, the board must make a definitive decision on whether to agree to take the money in November to get everything settled in December.
“We can say, ‘Proceed,’ come back next month and vote no,” Gould said of postponing the decision but starting the process.
A board workshop meeting is scheduled for the board Nov. 14, when a decision will likely have to be made.
Ziev and Khan felt that time line worked, allowing for a finance committee discussion.
Doyle said they’ll begin filing paperwork to get set up to apply in 2013 but none of it is binding.
“In the long run, I think we’ll come out better issuing the 9,8 million now and getting the lower interest rate,” Gould said.