Ocean City's school district is undertaking a debt refinancing plan that will allow it to capitalize on lower interest rates and save more than $1 million for taxpayers.
Essentially, the district is following the same strategy as myriad homeowners who have refinanced their mortgages in recent years to take advantage of historically low interest rates.
"That's exactly it," said Tim Kelley, the district's business administrator. "We are simply refinancing our existing debt. We are not taking on additional debt."
Under the plan, the district will replace about $11.7 million in existing bonds that have an interest rate of between 4 percent and 5 percent with new debt ranging from 2 percent to 3 percent.
Kelley estimates a total savings of $1.05 million in interest costs over the life of the new bonds through 2022.
The refinancing will also decrease the tax rate on the school district's debt service by two-tenths of a cent, resulting in a savings of about $10 per year for the typical homeowner whose property is assessed at $500,000, Kelley said.
On Jan. 20, the Board of Education introduced an ordinance to authorize the bond refunding. The board is scheduled to hold a public hearing and take a final vote on the plan at its Feb. 24 meeting.
Assuming the ordinance is approved, the new bonds are expected to be sold to investors in late March, Kelley said.
The refinancing represents the second time the district has undertaken a refunding on bonds that were originally issued in 2002 to underwrite about $28 million in construction costs for the new Ocean City High School.
The first refinancing was done in 2005 to take advantage of lower interest rates. Now, the 2005 series of bonds will be replaced with new debt at even lower rates. Besides the savings in interest costs, Kelley said it is also important to note that the district is not extending the terms of any bond payments. The maturity date remains 2022.
Combined savings from the two refinancings will amount to nearly $2 million over the life of the debt, according to Kelley.
The new bonds will continue the financing for the high school’s construction, Kelley pointed out.
Joseph Clark, president of the Board of Education, raised the possibility that the refinancing might also produce some money to help underfunded school programs or to save others at risk of being eliminated.
"We look at the whole picture to see what we could do," he said.
Clark noted that the entire school board supports the refunding plan.
"It's wonderful for the district," he said. "Any time we can save, we can put back money for the students. That's always a win for us."
