Federal tax bill will determine district's financial savings


In layman’s terms, passage of the hotly-debated federal tax bills in Congress could determine if the Lamar County School District will see as much as a $930,000 savings through re-financing school bonds.

Financial advisor Warren Greenlee of Duncan Williams – an investment banking firm headquartered in Memphis, Tenn., and with an office in Jackson – explained the situation to the school board during its meeting last Monday at the Purvis Upper Elementary School’s Multi-Purpose Building.

Greenlee said passage of the tax bills now being debated in the House and Senate will deny the school district the opportunity to re-fund current notes and pay off the interest and capital of the bonds with the money saved with the lower interest rates on the bonds and the higher investment return on funds held in an escrow account.

“The 2013 notes were issued several years ago,” he said. “The notes were not prepaid for until 2023, but federal tax laws allow you to refinance notes well in advance of the call date, or the prepayment date. The way that works is that you issue new notes – the re-funding notes – put the proceeds in an escrow account, that money is invested in the escrow account and the escrow funds pay the interest and the principal of the re-funded bonds – the bonds that we are paying off – on the call date, or the re-funding date.

“Because the interest rates are low enough on the re-funding bonds and because the investment return is good enough on the escrow account, you actually can still realize savings by issuing the bonds this far in advance.”

The savings realized in similar school districts have gone toward other projects, such as construction of new facilities, paying off bonds on large items or adding such long-term investments as athletic field lighting.

Greenlee said interest rates have started increasing this year, which would affect the final savings on the refinancing.

“More importantly, Congress’ Republican leadership’s tax overhaul proposals … also affects tax-exempt bonds, such as the school district’s ability to issue a re-funding bond,” he said. “Both the House and the Senate versions of the tax bills would eliminate the ability to do advanced re-fundings, which we were talking about in this case. The new federal tax law, if it goes into effect as proposed by both the House and the Senate at this point, would eliminate the ability to do advanced re-funding bonds for any bonds issued after Dec. 31, 2017.”

Greenlee said he and Jennifer Hession, the Director of Finance/Business for the school district, have been discussing the steps for dealing with the possibility of the tax overhaul’s passage. Requests for proposals were sent to five underwriters who usually issue bonds with school districts.

Greenlee gave the board members a “what-if” scenario.

“What would happen if the board decides to move forward and selects an underwriter?” he asked. “There are some steps we have to do first, such as getting a rating from the rating agency. Bonds have to be validated and then they have to be filed in the local chancery court. You still have about a 30- to 45-day process before you can actually close.”

The school board would not have to get a firm interest rate from the underwriter until the process is complete, Greenlee said.

“After we get the rating and that sort of thing and you decide to move forward with this resolution for an underwriter, you are not locked in to an interest rate until the superintendent signs a final purchase agreement with the underwriter,” he said. “So these numbers are all proposals and estimates, their best-faith estimates. The savings proposed by Duncan Williams was the highest proposed and significantly more than the rest. The gross savings would be a little more than $930,000.”

The school board voted unanimously to approve a motion hiring the bond attorney (Duncan and Williams) and the financial advisor and underwriter (Munigroup LLC).