Strategic Refinance Nets Savings for Borough Taxpayers

Proving that timing can be everything, a strategic refinance of existing debt has yielded over half a million dollars in future debt payments for Point Pleasant Borough Schools and ultimately, Point Pleasant Borough taxpayers.

Taking advantage of low interest rates, Point Pleasant Borough Schools’ administration recently refinanced outstanding bonds that were issued in 1998 and 2003. The bonds funded vital additions to Ocean Road and Nellie Bennett Elementary Schools as well as improvements to Point Pleasant Borough High School and Memorial Middle School.

Originally issued at interest rates ranging from 3.5 percent to 4.6 percent, the district was able to achieve a rate of 2.37 percent through the refinance, resulting in a savings of $540,555 over the life of the bonds.

“Beginning in 2012, taxpayers will see an approximate 6 percent reduction in the debt service portion of their taxes,” said Point Pleasant Borough Schools’ School Business Administrator Steve Corso.

“The savings, between $42,000 and $43,000 annually, will carry through the year 2023, which is the original finance period,” he added, explaining that the refinance would not extend the existing bond finance period.

According to Mr. Corso, the substantial savings are a result of several factors including low interest rates as well as the recent issuance by Standard & Poor’s of an AA rating to the Point Pleasant Borough School District. A rating shared with only 26 other school districts in the state, putting Point Pleasant Borough Schools among the top of financially well-managed districts.

This designation is a testament to the Point Pleasant Borough School District’s ability to maintain a high level of fiscal responsibility and stability despite market volatility as well the district’s record of consistent passage of the annual school budget.

“While market volatility and low interest rates were certainly an asset during the refinance process, it was the district’s bond rating that was instrumental in achieving such a favorable rate,” he said. “The AA rating is an affirmation of the district’s creditworthiness and fiscal responsibility, making the district attractive to investors.”

Mr. Corso said that the refinancing of existing debt is something the district continually monitors with the assistance of the district’s bond counsel.

“School districts in New Jersey are required to refinance their outstanding debt obligations if they can achieve a 3 percent present value savings,” he said. “When the district began this process is June, we were anticipating a savings of about 3.09 percent, the actual savings, however, was 6.20 percent!”

“While savings are generally predicated on the market at the time of the transaction, we were able to maximize savings because of the AA rating by Standard & Poor’s,” he continued.

According to Mr. Corso, the prime rate of the refinance can be attributed to the district’s strong history of meeting financial commitments, 14 years of clean financial audits, maintaining emergency reserve funds, and strong fiscal controls put in place by the business office and the Board of Education.

Other factors to the district’s AA designation is record of consistent passage of the annual school budget and the fact the district continually has one of the lowest costs per pupil

But according to Board of Education President Sean Hagan the credit goes largely to Mr. Corso and his staff.

“It is thanks to the diligence of Steve Corso, his staff and the district’s bond counsel that we are able to continue a sparkling record of sound financial practices,” said Mr. Hagan. “Their hard work has resulted in a tremendous benefit to the taxpayers of Point Pleasant.”

“I think it is also significant to note that these bonds are 8 and 13 years old,” added Mr. Hagan. “As both a board member and a taxpayer of Point Pleasant, I find it profoundly reassuring that the district is constantly seeking ways to conserve money.”

The district’s commitment to fiscal responsibility was demonstrated, once again, at the January 2012 Business Meeting of the Board of Education, where Superintendent of Schools Vincent S. Smith announced an additional bond refinancing opportunity currently underway.

“I expect to introduce an ordinance to pursue the refinance of some of the district’s remaining debt at February’s Board Meeting,” said Superintendent Smith. “As long as the savings meets the three percent savings threshold, taxpayers will realize an additional savings of over $72,000 in the debt service portion of their taxes over the life of the bonds.”