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KHS Building Corp. Approves New Bond Issue
May 13, 2009 - As efforts to refinance some of the debt on Knightstown High School move forward, the KHS Building Corporation recently approved another resolution authorizing a new bond issue.
One week after the Charles A. Beard School Board approved resolutions of its own related to the proposed refinancing, the KHSBC, a nonprofit entity formed in 2001 to oversee the construction and financing of KHS, did the same thing. The building corporation's seven members voted unanimously at an April 28 meeting to approve the resolution, which authorizes a $7.7 million bond issue, provided that CAB's semiannual lease payments and Debt Service tax levy do not increase.
Proceeds from the new bond issue will be used to pay off an earlier one from 2001, which had an outstanding principal balance of about $6.9 million as of mid-April. Lower interest rates are expected to net CAB at least $100,000 in savings over the term of the bonds.
The refinancing - a process called "refunding" - will also give CAB access to about $1.265 million now being held in a sinking fund. This money could be used to address facility needs at KHS or Knightstown Intermediate School. If CAB does not go through with the bond refunding, this money could only be used to pay off the original bond issue, due in 2022, a little early.
CAB will also likely get access to another $800,000 or more as the result of extending the bond repayment, which is governed by a lease between CAB and the KHSBC, by two years. This will result in CAB paying an extra two years on the lease, with the new bond issue's due date being 20024.
At last week's meeting, which was also a joint meeting with the CAB School Board, Steve Dalton, the school board's vice president, raised a question about language fund in the proposed amended lease between CAB and the KHSBC. According to the document, CAB's semi-annual lease payments "shall increase by a maximum of $80,000," between Dec. 31, 2009, and Dec. 31, 2021. Then, between June 30, 2022, and June 30, 2024, the semiannual lease payments "shall increase by a maximum of $357,000."
CAB Superintendent Gary Storie told Dalton that he thought he knew the reason why that language was in the proposed amended lease. However, he said he didn't know if he could explain it, and would check with CAB's bond counsel to get a firm answer.
School Board President Kevin Knott said that the school board did not want to increase the lease payments to the building corporation. If the refinancing can't be done without doing that, he said the school board wants to know before finalizing anything.
Jeff Weiland, KHSBC president, said that in the current economic climate, he would have a hard time justifying an increase in lease payments that resulted in higher taxes. Dalton said the school board would not go through with the deal unless the lease payments remained level.
When the KHSBC voted to approve its refinancing resolution, its approval had conditions. Specifically, they their vote was conditioned on there being no increase in the semiannual lease payments CAB pays the building corporation, and that there be no increase in the Debt Service tax levy.
Storie recommended that the KHSBC reconvene again in early June, sometime after a June 2 public hearing that the school board is required to hold on the proposed amendment to CAB's lease with the building corporation.
He said that there will be a lot of documents to sign at the next meeting and that bond counsel will be present to assist with that part of the process.
Storie said that prior to the June 2 public hearing, the school board will need to prepare a detailed list of proposed projects on which the money that becomes available through the refinancing can be used. He said this list will be based on information provided by Performance Services, a private company that is doing evaluation's of the needs of CAB's facilities.
At this point in the meeting, there was some discussion about what role, if any, the KHSBC plays in determining what projects will be undertaken. Winters said he didn't think the building corporation really has any say in that.
Greg Stolle, a new member of the KHSBC who was attending his first meeting, took a different view. He said he thought the relationship between the school board and building corporation was more give-and-take, and that part of the KHSBC's role was to delay the school corporation from going forward with anything that would not meet the state's approval.
Storie said he agreed with Winters’ view of the KHSBC's role. He said the building corporation exists simply to allow CAB to issue bonds and incur debt that exceeds the limit set by state statute.
Before the meeting adjourned, Knott said the school board wants the community involved in the strategic planning process. Before the board makes any decisions about how to spend the money, he said they will welcome input from the community and from members of the building corporation.
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