New bond types from federal stimulus lower interest rates
Redmond, Wash. – The latest bond sale for Lake Washington School District took advantage of two types of bond issues related to the American Recovery and Reinvestment Act (ARRA) to save $8.5 million in interest over the life of the bonds for the district and its taxpayers.
On September 28, the district’s board of directors approved a resolution allowing a sale of $40 million in bonds with a true interest cost not to exceed 5.15% for tax-exempt bonds and 6.25%for taxable bonds. These bonds were part of a larger bond measure passed by voters in February 2006.
The underwriter, D.A. Davidson and Co., conducted the bond sale in November. This sale included three different types of bond issues. Two new types are related to the American Recovery and Reinvestment Act (ARRA). The bond sale included the following:
- $8,555,000 – Tax-exempt Bonds – these are the type of bonds normally sold
- $14,000,000 – Build American Bonds (BABs) -- Taxable bonds. School districts receive a credit from the federal government equal to 35% of the interest cost
- $17,445,000 - Qualified School Construction Bonds (QSCB) -- Taxable interest-free bonds where the purchaser receives a tax credit in lieu of interest.
Market conditions were favorable. There were interested buyers for each type of issue. The district made a purchase of insurance on the bond through the Washington School Bond Guarantee Program, which also made them attractive to investors. The final true interest cost for the sale was 1.229% for the tax-exempt bonds and 2.581% for the taxable bonds.
In advance of the sale, the district confirmed its bond ratings. Standard & Poor’s continue to rate Lake Washington School District bonds at the AA level (outstanding). Moody’s continues to rate district bonds at the Aa1 level, which is also excellent. These ratings reflect the continued financial soundness of the district, represented by its healthy fund balance, stable enrollment, and sizable economic base.
Using these new investment tools available through AARA allowed the district to save $8.5 million in interest over the life of the bonds as compared to the cost of the usual tax-exempt type bonds.