Defeasance measures taken by the Lodi School District have already saved $1.5 million on its debt service.
On Monday, Oct. 11, the school board voted unanimously to set the mill rate for its 2021-22 debt service levy at 11.11 mills to further trim the amount.
It has the added effect of keeping the mill rate steady.
“One of the things we try to do in our district is to level off the mill rate and keep it from bouncing up and down,” said District Administrator Vince Breunig. “People are thrilled when it bounces down, but they are not so thrilled when it bounces up the next year.”
The practice of defeasance allows school districts to over levy for its debt service, with the funds generated invested in an escrow account at Associated Bank. That money earns interest, which is used to reduce future principal and interest on that debt issue.
“We’ve saved quite a bit of money, and a year,” said District Business Manager Brent Richter. “We have shaved a whole year off of our 20-year payment on our debt service. So, it’s been very effective.”
In a memo to the board of education from Richter, it was noted that the Lodi district has utilized defeasance for the past three years, setting mill rates for the debt service levy between 11.12 and 11.14.
Richter wrote, “Therefore, the School District of Lodi 2021-2022 Mill Rate will be set at a slight decrease from the prior several years.”
The district has defeased debt service by approximately $2.5 million, resulting in the $1.5 million in savings.
The facility and finance committee had already approved the move. Richter proposed a motion for the board to include a defeasance amount with the 2021-22 debt service level, allowing the total mill rate to be set at 11.11 mills.
Richter anticipates the measure will result in another $1.5 million in savings and “theoretically” would knock another year off the district’s 20-year debt service payment.
It’s a complicated matter, according to School Board President H. Adam Steinberg. He explained there were many variables involved and that the debt service mill rate could have been 11.9 or even 11.6 depending on various factors.
One was the recent Town of Lodi reassessment, which Steinberg said, “Went way up.” He said it was expected the debt service mill rate would end up under 11.11 mills.
Richter said the debt service mill rate could drop considerably, even going under 9 mills.
Through defeasance, however, over levying generates funds for the escrow account, where interest builds on that money.
Since the measure was approved, the community will then be asked to approve the amount of defeasance as a part of the total level at the annual meeting, slated for Monday, Oct. 18.
Following that meeting, the school board will certify the 2021-22 levy.