School district finalizes building program refinance

COUNTY — On Jan. 25, the School District of Pickens County and the South Carolina Association of Government Organizations Educational Facilities Corporation refinanced the bonds for the district’s 2006 building program, officials said.

The purpose of the refinancing of the 2006 Installment Purchase Revenue Bonds issued for funding the building program is to take advantage of more favorable market conditions and interest rates.

The bonds were also refinanced in anticipation of a capital needs plan to fund ongoing capital improvements, such as replacements of aging roofs, air conditioning units and classroom technology, school district spokesman John Eby said.

Refinancing the building program allows the district to issue new bonds generating approximately $3.25 million annually without raising the millage rate.

The refinancing will save approximately $27.4 million over the term of the building program bonds ending in 2031.

Board member Alex Saitta, who cast the lone vote in opposition of the refinance in January, said he supports the refinancing of bonds, but disagrees with the timing of the decision.

“The district has $300 million in bonds outstanding at 4.85 percent it is paying on, but those bonds are not callable and can’t be retired until December 2016,” Saitta said. “To get around that, the district is borrowing $300 million today at 2.9 percent and setting aside that new $300 million in an escrow account. It will carry that second $300 million loan until December 2016, so it will continue to pay on the 4.85 percent $300 million on the old loan plus pay on the new $300 million loan at 2.9 percent, less than half the percent it earns on the new money in escrow.

“In December 2016, when the bonds are callable, the escrow account will be used to pay off the old loan and refinancing will be complete. The next 18 months, from now to December 2016, it is quite expensive to carry the second $300 million loan. That extra cost is $10.9 million in total … $625,000 a month, or more than $20,000 a day.”

What is also troublesome to Saitta is that a dummy corporation would be used to borrow another $300 million, with the total debt of the dummy corporation being $600 million for the next 18 months against a $300 million asset in the escrow account.

“I didn’t support the creation of the dummy corporation and that entire scheme (in 2006, when the school board approved setting up a nonprofit corporation to issue the bonds rather than the district to establish the school district’s $300 million-plus building program), and I won’t support it this time around either,” Saitta said.

Saitta said the board’s decision “is one of the consequences” for undertaking a massive building program all at once without giving thought to the financial ramifications.

“It’s like going to one of those pay-lenders that gives you a loan on your next paycheck because you just can’t wait until pay day since you need the money so badly due to overspending up to that point,” he said.

Greg Oliver of The Journal contributed to this story.