Refunding bonds and higher levy rates considered for school bonds

School districts would have additional tools to service bonds authorized under the federal stimulus act and bonds financing health and safety improvements under two bills heard by the Education Committee March 1.

Current law permits school districts to issue bonds for projects addressing environmental hazards, accessibility barriers, life safety violations, indoor air quality, mold abatement, capital projects for qualified zone academies or American Recovery and Reinvestment Act programs for school expansion and repair. After holding a public hearing, school districts can levy up to 5.2 cents per $100 of valuation to service the bonds.

LB633, introduced by York Sen. Greg Adams, would permit school districts to issue refunding bonds to redeem any part of an outstanding bond authorized under current law at or before the maturity date.

Adams said LB633 would eliminate confusion regarding whether schools are authorized to refund bonds. He also said the bill could help schools capitalize on lower interest rates.

A second bill introduced by Adams, LB634, would allow a school district to exceed the 5.2-cent levy if a district’s current valuation is lower than the year in which bonds were last issued and the current maximum levy cannot service the bonds. The amount generated from the increased levy rate could not exceed the difference between the principal and interest obligations and the sum of the current maximum levy and federal payments or subsidies associated with the bonds.

Bond rating agencies would be inclined to give school bonds higher ratings under LB634, Adams said, adding that the bill would provide a safeguard against valuation decreases.

Representing Ameritas Investment Corp., Scott Keene testified in favor of both bills. In addition to providing easier access to lower interest rates, he said, LB633 would provide a tool to address a possible funding interruption for federally subsidized bonds.

Keene said many bond issuers refuse to buy limited-tax bonds because of nationwide valuation decreases. The additional taxing authority in LB634 would alleviate those concerns, he said.

“LB634 will dramatically improve the creditworthiness of school district financing because it will make those bonds a better credit risk from the bondholder’s perspective, as well as the rating agency’s perspective,” Keene said.

Lauren Wismer of Gilmore & Bell also testified in support of the bills. The closing of a major employer in a small town can greatly affect valuations, he said, which is a concern among bond agencies and can lead to rating downgrades that significantly affect bond interest rates.

Mark Shepard, associate superintendent for business affairs at Lincoln Public Schools, said one of the two rating firms downgraded the district’s bonds due to lack of a revenue safety net. He said one school district that fails to meet its bond obligations could have implications for the rest of the state.

No one testified in opposition to either bill and the committee took no immediate action.