Budget & Finance

Market Thaws Some For Districts’ Bonds

By David J. Hoff — March 09, 2009 1 min read

When voters in the Salem-Keizer school district in Oregon approved $242.1 million for school construction bonds in November, the market for such bonds was difficult for school districts to navigate.

But by the time the district sold $179 million of bonds in the first round of financing last month, investors were ready to buy.

“I’m glad we didn’t go to sell them in the fall,” said Rich Goward, the chief financial officer for the 42,000-student district, which serves the region around the state capital. The district will pay less interest than it had budgeted—from 1.5 percent for the one-year bonds to 5.8 percent for those that mature in 2030.

Last fall, the demand for municipal bonds was slack as investment banks went out of business or relied on federal help to prop them up. Several school districts were even forced to cancel their bond sales. (“Districts’ Borrowing May Face Hit From Continued Financial Crisis,” Oct. 1, 2008.)

Now, however, Salem-Keizer and other districts that had been frozen out of the bond market are successfully completing sales. On Feb. 4, for example, the Los Angeles Unified School District sold $900 million in bonds.

President Barack Obama has proposed raising tax rates on the upper-income tax brackets, making the tax-free interest payments from municipalities more attractive, Mr. Fabian said. Investors also are looking to bonds to provide income now that many companies have slashed stock dividends.

But not all districts are faring well in the bond market. Districts with bond ratings below AA (the second-highest on the scale) or without stable revenues to pay off the debt still struggle or are paying high interest rates, Mr. Fabian said.

The Salem-Keizer and the Los Angeles districts both received AA ratings from Standard & Poor’s, one of the major raters of municipal bonds.

A version of this article appeared in the March 11, 2009 edition of Education Week

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