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Bond sales to pay for upgrade at JBHS

July 18, 2009|By KATE S. ALEXANDER

MERCERSBURG, Pa. -- After looking at detailed plans for a $17 million renovation project at James Buchanan High School on Monday, the Tuscarora School District resolved to move forward with selling bonds for the project.

The "Plan B" proposal for the high school is a compromise from the district's $35 million plan that failed to gain voter approval last year.

Lauren Eby, senior analyst with RBC Capital Markets, said the board signed a maximum $20.6 million bond resolution Monday to give it flexibility within maturities.

The total debt service for the project will be $26.8 million for 20 years.

Regardless of the numbers on paper, however, the school district will not sell more than $17 million in bonds at a rate not to exceed 9 percent, Eby said.

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Eby said her firm hopes to sell the bonds as soon as possible at the best rate possible.

Interest rates on municipal bonds currently are hovering near 4.5 percent, Eby said. Build America Bonds, or taxable bonds that provide tax breaks for the seller, are about 6.5 percent.

To file properly with state and federal agencies, the school district capped its interest rate at 9 percent.

"Nine percent is not realistic in today's market," Eby said. "We will likely get a rate closer to 4.5 percent, but the purpose of that language in the resolution is to set a cap on interest."

Stephen Flaherty, director of municipal finance for RBC Capital Markets, said 94 percent of the time, interest rates are higher than they are now.

"If you were told you could get something cheaper right now than you could 90 percent of the time, you would probably take that bargain," Flaherty said. "That is where interest rates are."

While the bond market remains favorable, RBC Capital Markets is waiting to receive bond insurance and a Standards and Poor's rating for the issue before it sells the bonds.

With many residents still concerned about market stability, Eby said once bonds are sold, there will be no risk to the school district or taxpayers.

"The bond holders are buying the school district's debt," she said. "If they purchase that debt and then they go under, the school district will not lose anything. It will continue to pay principal and interest to its bank, M&T Bank, which will get the money to the bond holders."

As for the risk shouldered by bond holders, Attorney Joseph Pierce said the resolution is a promise by the school district to raise taxes, if necessary, to pay its debt.

Pierce said the federal Debt Act requires this assurance be made to bond holders.

Eby said the 20 years of maturities for the bond were structured to keep within the district's Act 1 millage rates.

Once bonds are sold, the school district can put the project out to bid.

Architect Hal Hart of Crabtree Rohrbaugh & Associates said the current project includes major mechanical and electrical upgrades, a new roof, new gymnasium bleachers, new auditorium seating, new plumbing and a security vestibule entrance to the school.

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