The practice is called ”defeasance,” and it has saved the Lodi School District $650,000 in interest costs.
It has also chopped its 20-year debt service down a couple of years.
That’s the conclusion of District Business Manager Brent Richter.
“As we have a referendum coming up in the next year, hopefully, this will work in the board’s favor as you continue to talk about the referendum coming up,” said Richter, during a report at the May 10 school board meeting.
The board voted unanimously to approve establishing an escrow account related to the defeasance of certain general obligation refunding bonds, dated March 1, 2017.
Since the 2017 bonds cannot be called currently, according to the resolution passed by the board, it is necessary for the funds to be “irrevocably deposited into that escrow account, invested in direct obligations to the United States of America, treated as a portion of the debt service for the 2017 Bonds and be applied to pay the principal of and interest on $1,130,000 of the 2036 maturity and the remaining $330,000 outstanding portion of the 2037 maturity of the 2017 Bonds (the “Defeased Obligations” on the March 1, 2025 early redemption rate.”
This particular measure is tied to the primary school project.
Richter explained that defeasance is way of over-levying debt service to pay off more of a loan so as not to incur as much interest.
The Lodi School District has taken advantage of it the last three to four years, with a tax levy mill rate of 9.8 per $1,000 of assessed property value that the board has “strategically levied up to about 11.13,” said Richter.
That means the district has spent an additional $750,000 to $1 million to pay down the debt.
In another financial move, the board rescinded a 2.51% increase for support staff compensation for the 2021-22 school year that it had approved earlier and changed it to 1.80%. Originally, the board approved the measure thinking that it would give each support staff member a $.25 per hour raise. A miscalculation was discovered, as it was thought the district had a high number of support staff eligible for additional professional growth increases.
“This professional growth compensation is always calculated first when looking at overall support staff compensation. Since there is a lower number of staff eligible for the professional growth compensation this year, there is less money that comes off the top of any compensation increase,” according to a note explaining the move that was provided for the board meeting.
The note also explained that the move actually ends up giving support staff a $.31 per hour increase, putting it in line with other labor groups.