Board considers restructuring debt

By on March 5, 2009

by Lynn Meredith
The Kaneland School Board faces a financial choice when it comes to how to pay off debt in a time of no growth. As an expected balloon payment of $1 million looms this fiscal year, officials are looking at alternatives.

Ten years ago, the district issued debt certificates of participation to pay for the additions onto John Shields and John Stewart elementary schools. The plan was to pay these off through developer donations, with one large payment in 2010 paid from money from the Williams Ridge development. With the district halfway through the payment schedule and growth coming to a halt, the anticipated money did not materialize.

The district has the opportunity to restructure the debt certificates to meet its payments. Linda Matkowski, PMA financial advisor to the district, said the current interest rate market is lower right now, making it a good time to restructure to avoid making the nearly $1 million payment this year. She presented the pros and cons to the board at Monday’s meeting.

“It would clearly be a drain on cash to pull the money out of the system if you didn’t have to,” Matkowski said. “You should look at restructuring the debt right now because it saves money on the debt service payments.”

Matkowski presented two options, beyond doing nothing and paying the $1 million out of the operations funds.

“We can refund the 1999 COPS (certificate of participation). We can re-level the existing payments. You’ll pay a little more every year, but you won’t have the big balloon payment. Or, in light of what’s happening currently financially, one of the options is to give a two-year ‘principal holiday,’ so to speak. You’ll still pay interest payments, but it would give you two years of much-reduced payments, and you’ll stretch the debt out a few more years,” Matkowski said. “That would give you about $900,000 worth of benefit as you get out to 2013 or 2014.”

The first option of leveling the debt allows for more savings, but results in a tighter cash flow. The second option of deferring the debt service provides a greater cushion of cash but stretches the debt out longer.

Board members will study the options, and officials will talk with the Financial Advisory Committee to get input. They expect to return to the discussion at the March 9 board meeting.

One Comment

  1. Daniel Herkes

    March 12, 2009 at 3:54 AM

    “Matkowski said. “That would give you about $900,000 worth of benefit as you get out to 2013 or 2014.””

    Is she expecting the housing market to begin to grow again?