Unexpected Bond Tax Savings to Local Taxpayers

Taxpayers will receive a surprise reduction to their tax bills in the mail this fall now that the Eureka City School District has completed a successful refinancing of its general obligation bonds originally approved by the voters in 2002 and sold in 2003.  According to Dr. Fred Van Vleck, Superintendent of Eureka City Schools, “The Board of Trustees, along with the District, believes we have a fiduciary responsibility to the taxpayers to reduce debt whenever possible, even if it means no gain in dollars for the district.” The bonds were originally sold at an average interest cost of 5.10% and included a separate bond authorization for projects that have now been completed at the secondary and primary schools in the District.  Earlier this month, the new refinancing bonds were sold at an average interest rate of 3.25%.  The District will use the lower cost funds generated from the recent refinancing to retire $22,380,000 of its higher interest rate bonds on September 10, 2012.  All debt service on general obligation bonds are paid by taxpayers and appear as separate items on tax bills, mailed each fall to property owners, which include two scheduled installments.


Debt service on the new bonds will be reduced by $2,770,000 over the next 13 years, and 100% of the savings generated from the refinancing will be returned to taxpayers starting with tax bills that will be mailed out by the County this fall.  District taxpayers will receive an annual reduction to their tax bills of $213,000 for the next 13 years.  Not all school districts have capitalized on this environment of low interest rates because the refinancing of tax-exempt debt is complex and time consuming.  “The traditional incentive of using a portion of debt service savings to construct additional school projects was eliminated in a recent clarification of State laws that now mandates that debt service savings be used exclusively to reduce taxes,” said Mark Epstein, Managing Director of California Financial Services, the District’s financial advisor.  “A considerable amount of district staff time was required to complete the refinancing. Eureka City Schools is among a minority of Districts that chose to commit the significant staff time solely to lighten the tax burden on their local taxpayers,” he said.

The District currently has two taxing districts with outstanding bonds.  Taxpayers whose children attend a separate elementary school district will see a reduction for the high school bond debt service savings while taxpayers residing in the K-12 attendance boundaries of Eureka City Schools will receive a greater reduction due to the savings on the elementary bonds.  The high school bond debt service is expected to decline by more than 9% per year and the elementary bond debt service is expected to decline by approximately 5% per year through 2025 and 2024, respectively.  The second and final issuance of bonds for the two measures was sold in 2004 and could not be refinanced for savings.