The worries on Wall Street and “significant problems” in the municipal bond market may force the Kent School District to postpone a sale of $25 million in school bonds, tentatively scheduled for Oct. 22.
The sale is the third of four bond sales approved by voters in February 2006. The money is to be used for repairs and maintenance, increased student capacity and health and safety issues. Included is the new Panther Lake Elementary, Phase II of the Mill Creek Middle School improvements and the Kent-Meridian High School gym addition.
Because of the problems in the market, however, Executive Director of Finance John Knutson told the board the district most bond issuers have delayed scheduled bond sales for the past two weeks and it may be better to push the sale into November or wait until after the first of the year.
Knutson said buyers have pulled back and interest rates are rising, making the sale less likely, a sentiment echoed by district advisors.
“A lot of investors just aren’t willing to commit to the purchase of bonds,” Joan Egan of the Sound Finance Group told the board, adding that while the stock problems may have gotten all the press recently, the bond market also has “significant” problems.
District bond counsel Roy Koegen of Koegen Edwards LLP agreed.
“The market is just unpredictable,” he told the board. “We’re experiencing financial conditions we haven’t experienced since 1929.”
The district, however, has a very strong bond rating, partially because of district policy to maintain a 5 percent fund balance, an issue Standard & Poor’s “explored in great detail,” according to Egan.
Plans are to assess the market and review the potential Oct. 22 sale this week and decide whether to offer the bonds at this time.
According to Koegen, the district is in good shape because of a very strong bond rating and relatively small sale, but said there no need to rush.
Egan agreed adding that the district has “plenty of time to wait this out if we need to.”
Knutson said if necessary the district can wait until early spring to make the sale, but after that, the various construction projects around the district could grind to a halt for lack of funding.
“Right now the cash flow is adequate to maintain our projects through March or April,” he said.
Knutson said the district remains optimistic the sale will go through on Oct. 22, but is prepared to wait if necessary.
“We’re hoping the market stabilizes and the buyers come back in,” he said.
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