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Duluth School District Secures $38M Bond for Facility Upgrades

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The Duluth School District has taken a significant step towards improving its facilities by approving a resolution to issue over $38 million in general obligation bonds. This decision, made during the school board meeting on September 26, 2023, is part of the district’s long-term facilities maintenance plan aimed at enhancing educational environments across the area.

Simone Zunich, the district’s executive director of business services, emphasized the ongoing nature of these improvements. “This is something we do every year. We look at our 10-year plan for our buildings, and what needs to be done, and we keep making adjustments to that plan, adding a new year. It’s always ongoing,” she stated.

Funding Focus on Essential Maintenance

The approved bond will fund a range of critical projects, including improvements to building exteriors, roofing systems, and essential maintenance on electrical, plumbing, and mechanical systems. The majority of the work will be concentrated on secondary school sites, though several elementary schools will also benefit from the initiative.

In compliance with state regulations, public schools in Minnesota must submit an annual long-term facilities maintenance (LTFM) plan to the Minnesota Department of Education before July 31. These plans outline a 10-year forecast of maintenance needs and estimated costs. Duluth’s submission followed the board’s meeting in July, and upon receiving approval from the education commissioner, the district moved forward with securing funding for the upcoming projects.

The process for issuing general obligation bonds typically requires a public referendum; however, for long-term facilities revenue projects, the district can issue bonds without an election. Zunich explained, “There’s many steps you have to get here. We work very closely with a financial team and then the Department of Education, before we even go to market for offers. It’s this process… but to simplify, it’s borrowing money to fix our buildings, the same way you would if you had a house and needed to replace the roof.”

Favorable Bond Terms and Financial Outlook

The district initially set parameters for the bond issuance not to exceed $38,665,000, with an interest cost cap of 4.75%. Ultimately, the district received a favorable offer from Robert W. Baird and Co., a Wisconsin investment firm, which provided the bonds at a lower interest rate of 3.52%. Board Member Amber Sadowski noted, “That’s a couple million dollars right there that we have extra to kind of work with.”

Alongside the bond approval, the board also sanctioned a corresponding purchase agreement for the bonds as part of its consent agenda. Repayment for these bonds will primarily be sourced from the school board’s local property tax levy, which the Minnesota Department of Education sets annually. Additional state aid may also be available for debt repayment associated with these general obligation bonds, although Zunich could not confirm the exact amount of potential aid.

Factors influencing the district’s tax levy for the fiscal year include ongoing bonding projects, enrollment trends, and current debt obligations. The education department will finalize the tax levy in December, but the school board previously requested that the levy be set at the maximum allowable amount for the upcoming fiscal year.

Repayment for the $38 million bond is scheduled to commence in 2029, after the district completes payments on a previous bond. The repayment plan spans five years, concluding in 2034, with interest bringing the total repayment amount to approximately $50.845 million.

As of September 1, 2023, Duluth Public Schools holds over $125 million in outstanding debt from general obligation bonds and contracts. Nevertheless, the district has maintained an A3 rating from Moody’s Ratings, indicating a strong position regarding both long- and short-term debt obligations with low credit risk.

Zunich highlighted the positive developments in the district, stating, “Duluth has all this activity going on… and we’re seeing that in our schools. We’ve restructured our finances. Enrollment is up. Duluth, the city, is growing. Those are all positives… that says this is so worthwhile, please invest in them.”

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