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Commission passes $43M school bond

By ZOË WATKINS - zwatkins@t-g.com
Posted 1/28/23

The Bedford County Board of Commissioners voted Tuesday night to pass a resolution passing the $43,500,000 bond for the new Cartwright Elementary School.

According to finance director Robert …

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Commission passes $43M school bond

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The Bedford County Board of Commissioners voted Tuesday night to pass a resolution passing the $43,500,000 bond for the new Cartwright Elementary School.

According to finance director Robert Daniel, this will not raise taxes but allow the county to draw the money out as needed, so they only pay interest as they use it. 

John Werner from Cumberland Securities is a financial advisor for the county. He explained the bulk of how this multi-million-dollar bond will work. 

Looking at the cost of issuance—assuming everything is purchased “at par,” where every $1,000 bond that the county sells, they get $1,000—Werner said they need to make sure there’s enough money to “cover that cost.”

Savings

Werner began working with the county about four years ago to refund all the county’s debt, therefore saving millions of dollars. At the time, the fixed rate market was “favorable,” according to Werner, locking in the interest rate at 1.51%. “That’s unheard of,” said Werner.

The financial committee passed the resolution with a favorable recommendation to set the bond with a variable-rate. The risk, of course, is interest rates could go up, but they could also go down. 

However, as rates have gone up, Werner said it makes more sense to use variable-rate debt versus fixing in at a rate now for the next 20-plus years. 

“The county is in good enough financial position with your fund balance to take on a little bit of risk in the variable-rate debt,” said Werner. “It’s our recommendation that you take advantage of this variable-rate debt.”

He explained that in this particular case short-term rates are almost equal to long-term rates. Basically, if the county goes with the variable-rate with a rate that adjusts every month or they went with something that’s not going to change for the next 20 years, then they’re looking at a rate of around 4%. 

There are a couple of benefits. One, again, is the county will only pay interest on what they’re using over the course of the construction period. This will be “timely draws” through the bank, then making debt payments to the contractors. 

Two, there are options. After a certain period of time, such as two years, the county then has the option to go to a fixed rate as markets improve, according to Werner. 

“If we did permanent now, we would not have that flexibility,” said Commissioner Greg Vick. 

‘Natural edge’

However, there is only so much in the fund balance to offset this variable-rate debt, so it couldn’t be used for every debt in the county. But Werner said the county has a “natural edge,” meaning they can match this school bond almost dollar-to-dollar. 

Commissioner Diane Neeley asked where the money will come from to make the payment on this since there will be no tax increase. Daniel responded that it would come from debt service. “We do have the funds available for it, so we don’t have to do a tax increase,” said Daniel. 

Daniel is projecting that payment to be about $2 million a year. The bond is set to last 25 years.

“What I’m really excited about is the school system has been able to stay on focus to design the school they need, not chase a dollar amount,” County Mayor Chad Graham said.