Mt. Lebanon School District not saving with bond refinancing

Mt. Lebanon School District not saving with bond refinancing

Only government can borrow more money and tout it as a “savings.” At this minute, our Mt. Lebanon School District is seriously pondering “saving” taxpayers money by borrowing an additional $3.9 million in concert with a bond refinancing. The plan under consideration will enable the district to take advantage of favorable interest rates on the outstanding principal of a 2005 bond issue, $52,155,000, AND receive an additional $3.9 million for no specified purpose. Total borrowing about $56 million. The original 2005 par value was $52,980,000.

The principal outstanding is a good place to start a discussion. Based on the principal and interest structure the district adopted in 2005, only $825,000 (1.6 percent) of the principal has been paid off in nine years, all the while, millions of dollars in debt service has flowed from taxpayers.

This extraordinary interest expense results from a financing strategy known as bond “wrapping,” which permitted the district to have its money up front, defer principal payments into the future and minimize the tax burden in the moment. In the long run however, it cost taxpayers millions in unnecessary interest expense. This is a fine example of the costs associated with “kicking the can down the road.”

As to the additional $3.9 million under consideration, the district’s financial advisor has described the scenario as refinancing a home and taking equity out at closing (cash).

No. It is like paying off a loan with an even bigger loan. The district has no equity position … only OPM (Other People’s Money) with which to work.

There are options to reduce the tax burden with this refinancing, however to no one’s surprise, these options have failed to garner majority support. Taxpayers are due relief, considering the millions of dollars that have already been squandered away on interest expense.

Bill Matthews
Mt. Lebanon

We still don't know the winning bid UPDATED 2X

Last night, Mt. Lebanon School Board Directors approved the second bond issue for the high school renovation. It brought $32,950,000 in proceeds. It will have for the first year, a .2 mill tax increase, a  .19 mill tax increase for the second year, and a .2 mill tax increase for the third year. We sold $35,090,000 bonds for proceeds of $32,950,000. The expenses appear to be over $2 million.  Scott Goldman was the only director who voted against it. Level funding cost $7,890,000 less than wrapping bonds and borrowing the interest over the life of the bonds, assuming the bonds are not refinanced.

What we don't know is what the net interest cost or the true interest cost of the winning bid. We were told that the winning bid and the cover bid were within .01% of each other. The board did not reveal either cost last night.

In 2009, we were quoted a 3.59% Arbitrage Yield, but in the Act 34 document, it was revealed that the True Interest cost was 4.10%.

Moody's report is here. The podcast to last night's meeting is here.

Update August 20, 2013 12:11 PM Taxpayers file lawsuit to block Woonsocket tax.

Update August 20, 2013 5:53 PM The MTLSD website is down, but I understand this was posted today. Also, residents have called Jan Klein today, asking for the winning bid and was told to file a RTK. Any stockbroker could have answered that question, but you won't get it from the School District .

School Board Votes to Issue Bonds to Complete Financing for High School Project August 20, 2013 At the August 19, 2013 School Board meeting, the Board voted to authorize the issuance of General Obligation Bonds, Series of 2013 in the aggregate principal amount of $34,745,000 to provide funds  for the completion of the renovations to the high school. The bidding was favorable with the District being the only competitive bond sale scheduled in Pennsylvania this week, and the second largest and second highest rated sale of only 11 competitive sales across the country on Monday, August 19, 2013. There were a number of bids, and the bids were very close.  The winning bidder was Mesirow Financial of New York City.  Mesirow is generally not an active bidder on Pennsylvania school district bonds, but said they were enticed to bid due to the strong Aa1 credit of the District and the belief that their investor base would be excited to own these bonds.  With this sale, the District will continue to finance the construction of the high school until its completion in 2015. On  August 12, the Board gave direction to the financial advisor and bond counsel to proceed to bid on an anticipated $33 million debt issue to fund the remaining costs of the high school renovation project. The bonds were directed to be wrapped around existing debt so the millage cost to the community will be minimized with the debt payments implemented over a three year period. It is anticipated that the increase in millage will be below .2 mills each of the next three years to complete this financing.

School Board Moves Ahead with Bond Issue for High School UPDATED

School Board Moves Ahead with Bond Issue for High School 

On Monday, August 12, the Board gave direction to the financial advisor and bond counsel to proceed to bid on an anticipated $33 million debt issue to fund the remaining costs of the high school renovation project. The bonds were directed to be wrapped around existing debt so that the millage cost to the community will be minimized as the debt payments implement over a three year period. It is anticipated that the increase in millage will be below .2 mills each of the next three years to complete this financing. Board approval of the sale of these bonds is anticipated at the August 19, 2013 Board meeting.

The bond analysis has finally been shared with the public and can be found here. Debt Profile

Update August 15, 2013 1:33 AM Mt. Lebanon schools pick loan option

It's a wrap!

The school board has decided to use a wraparound structure for the second bond issue vs. level payment. With the cushion, a.k.a over taxing, that the school board has established, the board has decided to use capitalized interest. The cushion could be used for OPEB, the grievance, the rifle range, etc.

Tim Frenz, again did not have a presentation for the public. He resorted to pointing to his papers, rather than sharing the information on the screen to his left. In all my years of making sales presentations for my $5 million territory, I would have been fired for being so unprofessional. Josephine Posti said it in a nutshell. The public does not have the figures that the board has to see, to know that they are making a good decision. Why not, Josephine? She went after Scott Goldman when he voted in favor of level funding. He calculated that level funding will cost the district $5.6 million LESS. By wrapping this bond, we will be paying 19% MORE. She said that it will cost us more in millage. Scott tried to explain that we have the option to refinance a level bond issuance, as well, while saving taxpayers $5.6 million dollars. Cappucci, Birks, and Posti all pounced on him.

The good news is that Moody's has given Mt. Lebanon an AA1 rating.

I am not pretending that I am an expert on this topic. It is complicated to me, so please listen to the podcast for a better explanation. It is available here.

From Timmy's association

A Lebo Citizens reader sent me this very important tool kit that comes from the School Superintendents Association, AASA. Instead of taking pictures of bathrooms and water fountains, providing this toolkit for cost-effective financing for school construction and renovation might have been a better use of his time. No worries, Timmy will get his raise and probably a bonus for his valuable contributions to the high school project. http://www.aasa.org/content.aspx?id=12676

But superintendents aren't the only ones who receive sound, financial advice from their organizations. The American School Board Journal cautions its members when making district investments. Collateral Damage, written by Charles K. Trainor, an ASBJ contributing editor, is a certified fraud examiner and certified internal auditor. His article makes me curious as to how MTLSD's available funds are invested. According to Jan Klein's July 1 document to the school board, there is

• $1.7 million in the Asbestos Fund
• $6.35 million in the General Capital Project Fund
• $3.24 million in Excess General Funds remaining form 2011, 2012, and 2013 (estimated) 

I wonder if Charles K. Trainor, president of Management Audit Consultants, Inc., would come to Mt. Lebanon since we have been using the same auditors for twenty five years. Jan Klein has quite a bit of money stashed away. I hope it has been invested wisely. For some reason, the school board directors don't want to touch it.

Please note:
It is August and the 2013-14 Final Budget has not been posted.
No word on level funding on the district website.
Next school board meeting is August 12, 2013.

Lebo needs to demonstrate fiscal responsibility

Mt. Lebanon resident and Lebo Citizens reader, Bill Matthews submitted a letter to the editor of The Almanac. Here is the link to his letter. The letter is published below in its entirety.

Lebo needs to demonstrate fiscal responsibility

Mt. Lebanon School District is embarking on the second bond issue for our high school renovation. As currently planned, the financing will cost more than it should for three reasons: 1: The renovation is too big and expensive. 2: The financing plan is to �wrap� the bonds. 3: The plan includes capitalizing interest in the early years.

It will not change anything now to discuss the size and scope of the project; but we should never lose sight of the fact that our board, when they thought there was room in the budget, added amenities not recommended in the space plan prepared by our former superintendent, yet did not delete these upgrades when the initial building bids burst our bubble.

One could see the proposed bond wrapping coming years ago. Nevertheless, its primary purpose is not to soften the millage impact as alluded to by the board. The bonds are being phased in to provide for actual future millage increases up to Act 1 limitations. Between the demands of this financing, and normal operations, we can anticipate experiencing maximum allowable millage increases for the next few years.

The capitalized interest is, however, an opportunity to demonstrate some respect for Mt. Lebanon residents and taxpayers. The plan includes about two million dollars in borrowed money to fill out the interest expense in 2014, 2015 and 2016. The administration has acknowledged it has three million dollars that could be used to reduce the total borrowing, to which the board turned a deaf ear.

Here is a suggestion, in lieu of hoarding these funds the board could demonstrate some fiscal responsibility by at least paying the interest expense with the available reserves. Effectively, it would do two things: lower the overall cost of the borrowing and consequently, lower our go forward tax burden.

Our school board will be discussing the bond issue on Aug. 12, and possibly give direction to our financial advisor to sell the bonds; taxpayers with similar concerns or even better ideas should contact the board, maybe they will listen.


Bill Matthews
Mt. Lebanon

We're surrounded by greed

Remember when the school district increased our taxes by 10.5% in May 2010? Sure you do! Mt. Lebanon Passes Budget To Pay For School Renovations Want to know how excessive that tax increase was? I filed a Right To Know for Jan Klein's July 1, 2013 report presented to the school board directors. My July 16 request was finally granted today.

The ONE PAGE report is located here. Notice the excess funds available from the May 2010 tax increase $2,375,000!!!!! How about that General Capital Fund, Dave and Dave? $6,350,000!!!

The commission majority wants to turf Mellon Field and the School District is sitting on $8,585,000, yet they want to wrap bonds to pay for the entire balance of high school renovation.

Dave Brumfield, Kristen Linfante, John Bendel, Dave Franklin, and all the rest of the sports people that were at the commission meeting last night: Why aren't you going after the school district to fix their own damn fields? For that, our sidewalks are missing on safe walking routes, people are plagued with flooding issues, our municipal building can't be locked securely, the golf course can't have a tractor, staff has to cut back, we can't close the pension funding gap, haven't paid for McNeilly, and we haven't started to fund the TOD project.  But hey, you have $829,561 just burning a hole in your pockets. So what do you want to do? Turf a school district field because it is a "safety hazard." Equally hazardous as people losing cars and damage to their homes due to flood waters or making kids walk to school on busy streets that have no sidewalks. What are you thinking, boys and girls??????

Wrap, wrap, wrap. They call him the Wrapper.

Tim Frenz, from Janney Capital Markets, a subsidiary of Janney, Montgomery, Scott LLC, presented two options to the school board at last night's July Combined Meeting. The board made this resolution:

General Obligation Bonds for High School Renovation Project: RESOLVED, That the Board authorizes Tim Frenz of Janney Capital Markets and Jim Webster of Houston Harbaugh to begin preparation of financial documents and legal opinions to issue General Obligation Bonds to complete funding of the High School Renovation Project.

I uploaded the podcast from last night's meeting and it is available here. While the presentation was long, here are the highlights, as best as I understand. There were two options, both involving wrapping bonds.

Option 1
Using the $1.7 million in the asbestos fund and taking nothing out of reserves, the board would consider financing a $32.9 million bond resulting in $35 million. (5 year phase in). This wraparound option would phase in a .56 mill increase. It reduces the annual payment and wrapping keeps the millage rate lower for the community.

Option 2
Using the $1.7 million in the asbestos fund and using $3 million in reserves, the board would finance a $30 million bond, resulting in a .5 mill increase for this wraparound option. (3 year phase in)

Dale Ostergaard pointed out that the reserves would need to fund five things.
1. PlanCon reimbursement, which won't happen this year either.
2. OPEB (Other Post-Employment Benefits) reimbursement
3. Maintain the annual capital fund which amounts to $5 or $6 million, to allow for purchasing books, computers, etc.
4. Rifle range funding?
5. The MLEA Grievance

At this point, Ostergaard, Cooper, Birks, Lebowitz, Remely, and Posti opted for Option 1. Scott Goldman, the only fiscally responsible school board member opted for Option 2, based on further clarification from Jan Klein. She has set aside $1 million for the grievance. It could be plus or minus $1 million, but she decided to set aside $1 million.  According to Klein, there is approximately $8.5 million available total in all the funds. She felt comfortable taking $3 million from those funds and applying them to the second bond issue. Since Goldman was relying on Klein's expertise, he opted for Option 2.

Posti and Cappucci opted for Option 1.

In the end, it was a unanimous vote to go with Option 1 with the vote scheduled for August 19.

A few observations from last night's meeting:

Thanks goes to Mary Birks for trying to eliminate that one dollar for the wall padding.  Good work, Mary! You tried.

Larry Lebowitz gave his usual Rah Rah speech for Klein's excellent work.

Tim Frenz only had enough handouts for the board and had no PowerPoint presentation. He balanced his papers on his chest, pointing to his papers to make his presentation. A resident asked for a copy of his presentation and Mr. Frenz didn't have extra. The same resident asked Jan Klein for a copy and she responded with that she didn't have any extra copies and to File a Right To Know. So much for transparency.

There was no third option presented for level funding, only wraparound options.

We can refinance again starting in 2015 or 2016.

Frenz is a hero for not taking all the money out in 2009.

These bonds will not be an exception for Act 1. The Act 1 Index is getting tighter and tighter.

The drop dead date for the second bond is October - November. Berkabile says October. Jan Klein's sleep is important to her and would sleep better if this was done in August.

This will cost us $3.5-4.5 million to finance.

In addition to Mr. Frenz' presentation, a RTK is needed for Jan Klein's July 1 presentation to the board.