Washington schools accept unusual bond bid

The Washington school district will pay an unusually high interest rate of 25% on its bonds approved in a recent special election, but only for the first year of its 20-year payment schedule.

“The winning bidder is using that abnormally high interest rate to buy down the interest rate in some of the later years,” said Tim Oswald, a third-party financial adviser for the district. “We did not preclude a bidder from doing something like this bid. We certainly didn’t think they would go this extreme.”

Oswald said the bid, from Northland Securities Inc., had the lowest average rate, and would save the schools around $140,000 in the long run.

“There’s some upfront deviation, or pain, in exchange for some long-term benefit,” he said. “Northland’s bid was still cheaper, even after adjustments, and Northland’s bid gave you a greater degree of future bond capacity … it made sense to move forward, even though that rate does look odd.”

That first year’s payment is still affordable through property tax revenue and without dipping into other revenue streams, according to District Business Manager Jeff Dieleman.

“We worked this out so that the first payment fits under the $2.70 that we’re collecting,” he said. “We’re just fine making the payment, it’s just more interest than principal that first year.”

Comments: Kalen.McCain@southeastiowaunion.com