Friday, January 27, 2012

Borrowing Money to Save Money

They say you have to spend money to make money.

But last week, the Pottstown School Board voted to borrow money to save money.

What the district intends to do is to re-finance a 2006 borrowing of $8.6 million, which still has $6.1 million left to pay.

Gordon Walker of Public Finance Management told the board that the continuing drop in interest rates means re-financing the bond and paying less interest will save district taxpayers money -- "a very healthy savings" of about $290,000.

The actual overall savings in interest would have been more than $400,000, but the fees for the underwriters, bond insurance and the cost of issuance and other expenses  will consume more than $125,000 of that savings, leaving a net savings for taxpayers of $289,487.25.

Walker noted that one year ago, interest rates on bonds were 5.39 percent and last week, were at 3.62 percent, a drop Walker called "mind-boggling."

"There is a lot of re-funding going on," Walker said. "There's a lot of fear about what's going on in the world and bonds are a safe place to park your money," he said.

The re-financing will not extend or shorten the payment schedule, which will end in 2019.

The board must still decide how to take the savings -- all in one year or spread out over the life of the remaining payments, said Business Manager Linda Adams.

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