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District to reinvest in new bond series

By Staff | Nov 19, 2008

In order to protect district funds in these precarious economic times, the Lee County School Board voted Tuesday to authorize a 2008 series of certificates of participation or documents used from a municipal government when issuing a bond.

The school district’s 2004 series is currently worth $140 million. Tuesday night the board decided to take approximately half or $60 million and create a new 2008 bond series for the purpose of “purchasing certain real property and educational and auxiliary facilities, vehicles and equipment.”

Bank of America will issue its new bonds at a fixed annual rate, and after three years the district will have to sit down with the lending institution to decide the next step in its investments.

Also, the district could be responsible for paying as high as 12 percent or 13 percent on the bond in a worst-case scenario, explained Jerry Ford, the district’s financial advisor.

Bank of America will use a “swap” to enter the bonds in the derivative market, but Ford insists that there is no high risk associated with the transfer.

“In this budgetary environment, when you receive cutbacks from the state and have the potential of further cutbacks, your liquidity becomes very important to you,” said Ford. “We recommend this route instead of a purely variable rate to give you certainty.”

The current economic climate throughout the state is dire. The district is threatened with having the state take away more of its two mill money, used to fund its capital projects. Furthermore, it is unknown how additional cuts will pan out in the 2009 to 2010 school year, a variable dependent on student enrollment and local revenue.

States across the country are close to bankruptcy as well, experiencing revenue loss, cutbacks to major programs and increases in payments to the high percentage of unemployed citizens.

Variable rate bonds have yielded the district high gains in the past, but would not be safe based on the current financial market.

Ford stated that the $700 billion injection of federal funds, commonly referred to as the “bailout plan,” could stabilize the market and set the stage for inflation, although some board members foresee a hidden danger.

“There is a little risk here and a derivative instrument,” said Board Member Robert Chilmonik. “We are taking somewhat of a financial risk, depending on what the market does.”

Ford explained that the only risk associated with the bond swap is the chance that Bank of America will not be able to weather the current economic crisis.

Reuters reported on Tuesday that Bank of America is now the nation’s largest mortgage lender after buying out Countrywide Financial Corp. for $2.5 billion in July.

“It is the best option considering the market at this time,” said Board Member Jane Kuckel. “It is a three-year plan and we would have to come back after that.”

Chilmonik added that he would like to see the school district take some of its funds that are leftover from the 2004 bond series and use it to pay off some of the district’s numerous capital debts.

In other news:

— The board approved a HVAC and Mechanical Upgrade Project for $10 million at North Fort Myers High School including the installation of underground pipes.

— The board approved the 2009 to 2010 instructional calendar, which is available online at: www.leeschools.net.