A new state rule change allows the Redwood Area School District buildings to be paid off earlier.
In 1990, Redwood Falls School District 637 was granted a capital loan by the State of Minnesota in order to finance a portion of the construction of a new school facility. That loan in the amount of $5,837,211 was received by the school district in 1991. At the time, the interest rate for the loan exceeded 6 percent. Over the years, the old Redwood Falls school district also received a maximum effort debt service loan. Since receiving the loan, the district has collected taxes from the old District 637 taxpayers to cover the interest on that loan which has a 30-year term with the understanding any amount fo the loan left unpaid at the end of the 30-year time frame would be forgiven by the state. Over the years the old school district has paid millions of dollars into the state and significant research has been done to determine if there was ever a way to pay off the loan early rather than continue to pay the interest on it. That opportunity never seems to be best for the school until a new law was approved by the state during the special session. As part of the state omnibus education bill, a provision was added that allows districts with a capital loan to repay them in full before June 30, 2012, and the school district is taking advantage of that opportunity. The Redwood Area School District adopted a resolution giving its financial consultant, Ehlers and Associates, the green light to move forward with the sale of general obligation refunding bonds in the amount of $5,225,000 to pay off the loan to the state. Over the life of the bond the district’s taxpayers would continue to pay off that amount but at a much lower interest rate which would save the district significant dollars – to the tune of $12 million in interest it would pay under the loan agreement it approved back in the 90s. In the end, said Joel Sutter of Ehlers and Associates, the school district would save approximately $6.2 million it would have had to pay under the 90s loan agreement by buying the new bonds and paying off the state maximum effort loan. Sutter said part of the reason he sees that the state agreed to this was to help with its cash flow issues right now. Having that money now helps the state cover the budget deficit the state had to balance this session. In 2012, Sutter said the school district’s taxpayers would see approximately $622,000 less in taxes collected with that amount increasing through 2020 when the bonds would be paid off by the district. For the average taxpayer owning a house worth $100,000 that would mean paying $52 less in taxes than it is currently paying. A proposed timeline would have the bonds sold at a meeting Oct, 18 with the loan repaid by the middle of November.