Oct 30, 2022
The Price of Not Paying Down Principal
Question on School Website: Why is the District delaying the payment of principal on the bonds? Won’t this cost us more money over the life of the bonds?
School’s Answer: In providing long term planning for the School’s capital improvement needs, it has been important to the District and the Board of Education to keep the bond fund levy as stable as possible. The belief is patrons that have used, are using, or will use our facilities in the future will see a similar levy for these facilities. As such, when looking at all of the outstanding bond debt service, some principal payments have been deferred to allow for older bonds to be paid prior to the new bonds becoming due. If the principal on the bonds were to be paid on a more accelerated basis, the bond fund levy would have needed to be increased to a much higher level.
Mark Byars stated something similar on YouTube for the September 26 Board Meeting at the 41:58 mark https://www.youtube.com/watch?v=JkP_1iX8PjY&t=2366s
“We could pay more principal. What that would require is raising the levy to raise more funds to pay more principal now and the reason that I have not been supportive of that is because I don't think it is right or fair to ask residents of the district today to pay for a school that's going to be used 20 years from now by kids who aren't even born and families who aren't even in the district yet. Why should current residents today pay their preponderance of a debt load that's going to be used by other families tomorrow it would be an undue burden on current residents”
The simple answer is YES. Yes, it will cost us more money over the life of the bonds. What about current residents with no kids, generational farmers, or retirees? You expect them to pay millions of dollars more in total than needed for interest-only schedules? Mark wants to kick principal payments down the road for kids that are not even born yet and families who aren’t even in the district. They want to use this bond to build a new school in 3 years. Not 20. For those of us with kids in the district, we tend to stay around for at least 20-25 years. I’m sure we all would prefer to NOT pay 20-80% more than needed.
Let’s call a spade a spade. We could pay more principal, but that would require us to raise the levy because we have been layering interest-only debt for years to leverage as much as we can while keeping our payment low and hoping the valuation growth keeps us afloat. It would be really hard to fix now, so Mark will try to explain it away as if it was their master plan. Rule #1 in finance, don’t take on debt you cannot afford now.
We are the only district around structuring our bonds this way since the beginning. We have many bonds where we pay only interest in the beginning, and then refinance the bonds prior to paying any principal. Think about the original high school bond for $15.94 million back in 2003. The school stated we still owe $6.455 million on our first original bond. In almost 20 years, we have only paid off $9.485 million on this bond. I could not even really tell you how much we will ultimately pay in TOTAL for the high school because that 2003 Bond was refunded (refinanced) in 2009, 2014, and partially again in 2019, and 2021. Many with early year interest only schedules and note that we paid the Underwriter and all the fees each time we refinanced. Total could be close to $25 million+.
Other districts manage to pay down debt without significantly raising their levies and maintain a good debt ratio throughout.
Bennington deserves better.
Vote AGAINST the bond and vote in a new school board to address these financial issues.