KCSD considers debt restructuring
MILL HALL — The Keystone Central School Board is considering two debt restructuring options in an attempt to close its $7 million budget deficit for next year.
Audrey Bear, senior vice president with Robert W. Baird & Co. Incorporated, presented the two options to the board Wednesday evening, both of which involve extending the debt payments over five years instead of the current three-year payment plan.
As a note, all the numbers below are based on what the district will pay after it receives Planning and Construction Workbook, or PlanCon, reimbursement money from the state.
The board owes a combined $11,096,894 in debt service spread over five general obligation bonds: two from 2012, two from 2013 and one from 2015. It has already made the payment of $3,562,614 for 2018.
If the board does nothing and proceeds with debt payments as scheduled, all debt will be paid off in three years.
“That is very unusual,” said Bear. “To have only three years left to be out of debt” is a very good thing.
That’s assuming that the board can pay debt service of $3.4 million in 2019, $3.2 million in 2020 and $863,299 in 2021.
But due to the looming $7 million budget deficit, they may not be able to.
The first option Bear presented involves taking the two bonds from 2012 and extending those three-year debt payments by another two years. Bond 2012A has a total of $1,770,585 left to pay off and bond 2012B has a total of $2,603,705 left.
By extending the debt service two years, the board would pay around $2.6 million in 2019 and around $1.3 million the next four years.
That, Bear explained, would free up around $1.3 million for the board to use in next year’s budget to help close the deficit. But it would end up costing the district $356,994 more overall than paying off the debt in three years.
The second option involves restructuring the 2012A, 2012B and 2013B bonds. This would save the district around $2.5 million next year but would extend the debt service payment for 2012A and 2012B two years and 2013B three years, for a total of five years to pay off those bonds.
With option two, the board would end up paying around $1.6 million in debt service every year for five years. And, with interest and service costs factored in, it would cost the board over half a million dollars more overall to pursue the second option.
“The two year option is not your only option,” said Bear. But she explained that extending the debt service more than two extra years would result in higher costs for the district.
Substitute Superintendent Dr. Alan Lonoconus asked Bear what other school boards in similar situations have done.
Bear said she more commonly sees districts extend their debt service payments 10, 15 or sometimes 20 years.
“This is the same concept that I have worked with other districts…but you’re lucky in that you only have to go out a couple of years,” she said.
A member of the audience asked if refinancing the bonds will impact the district’s credit rating at all.
When the last bond was issued three years ago, the district was given a rating of A+, which is in the upper medium grade of credit ratings.
“Refinancing in and of itself would not change the rating,” said Bear.
Business Manager Susan Blesh asked if the district’s current financial distress would affect the rating. Bear said it would. She said that credit rating agencies like Moody’s, Standard & Poor’s and Fitch Ratings typically look at a district’s cash balances, emergency funds, proactive budgeting and planning and local economy.
Board member Bo Miller said it seemed like incurring more debt would make it easier for the district to borrow in the future, because cash flow would be better.
“It does seem highly counterintuitive,” he said.
Bear said that could be the case, considering that restructuring the debt could provide the district with millions more in cash flow.
Dr. Lonoconus requested an executive session after the meeting. The board has not yet announced any decisions on debt restructuring.