School credit rating gambit pays off with $700K savings

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JASON HAWK
EDITOR

Taxpayers, you can be happy: About $700,000 in interest will be saved on the recent sale of $10 million in bonds by the Oberlin City Schools.

The savings come after a recent credit rating by Moody’s Investors Service.

It landed the local school district a Aa3 rating backed by the state’s Aa2 rating, according to board of education member Ken Stanley.

Seeking to finance construction of a new PK-5 school, the board searched for creative ways to keep its debt burden as low as possible.

It was Stanley who pushed for an outside-the-box idea: Instead of paying back $10 million over three decades, why not pay as much back as possible right away?

“It’s math and the hardest thing about math is always asking the right question,” he said. “The question in this case was, do you want to pay four percent interest, a 30-year interest rate, on bonds you’re going to pay off in five years? Or do you want to pay a five-year interest rate of two percent? Once you ask that question, it’s obvious.”

Legally, the district can’t pay off all its new school construction debt in five years. But to the extent it’s able, Stanley said the smart play is to avoid long-term interest.

It’s also worth noting that the $700,000 savings is not liquid. It’s not extra cash that can be tapped to hire teachers — rather, it’s debt taxpayers will never incur.

The credit rating was key to the whole deal, Stanley said.

Moody’s was reassured by Oberlin’s state foundation funding, which can be used if absolutely necessary to pay off construction debt, he said.

Oberlin College’s footing in the community, the local economy, income tax base, and culture all played into the rating evaluation.

Typically, school districts are scored one rung under their home city’s credit rating, and Oberlin has a Aa2 rating.

This was the first-ever rating process undertaken by the city schools and it sets a benchmark going forward.

It will come into play again next year because the board of education intends to issue another $7.6 million in bonds.

Stanley said that before going out to the market, the plan is to be evaluated again by Moody’s.

That, however, could be delayed by the arrival of tax revenue from the NEXUS pipeline — “if it’s real, if it’s coming in” — he said.

Stanley is confident there will be some large sum of NEXUS tax revenue coming in, though it’s unclear whether it will be quite as large as the $1.38 million the gas transmission company projected for the first year of collections.

Over five years, the Oberlin City Schools could see nearly $6.5 million from pipeline taxes, with additional millions going to Firelands, Midview, and Keystone schools, according to figures provided by NEXUS.

The Lorain County JVS, county commissioners, villages, and townships in the pipeline’s path are all scheduled to also receive property tax benefits.

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