`School district calls in the experts to analyze investment strategy`

By Joe Pinchot
Herald Staff Writer

When John G. Sava was superintendent of Farrell Area School District he frequently talked about the day early in the next millennium when the district would be debt free.

But Sava’s successor, Richard R. Rubano Jr., is not convinced that being debt free would be an advantage for a non-profit agency such as the school district. The school board last week hired the Pittsburgh investment banking firm Shelby, Kern, Frederick and Shelby to analyze the school’s debt and reimbursement structure.

The company’s review will look at both short-term and long-term concerns, Rubano said. The immediate concern is the district’s high annual debt payments on bond issues for past construction projects. The district pays more than $800,000 a year on the bond issues, and the state reimburses the district half. With a mill of property tax bringing in about $16,000, it takes 25 mills of the district’s 110-mill tax rate to pay the half of the debt not reimbursed by the state.

A mill is $1 for every $1,000 in assessed property value; assessments are one-third of a property’s 1970 market value.

The district has two remaining bond issues, said business administrator Ronald Pendel. The 1992 issue expires in 2002 and the interest rate rises from 4.85 percent this year to 5.25 percent in the last year. The 1994 issue expires in 2005 and the rate goes from 3.75 percent this year to 4.625 percent in the last year.

The district might be able to restructure the debt with a lower interest rate, Rubano said. “This could free up some operating money and lower our debt service.”

For the last few years, the district has used its fund balance to balance the budget. If the trend of expenses being greater than revenue continues, the fund balance — which is invested — could be wiped out in a few years, Rubano said.

There is $1.6 million in the fund balance, Pendel said.

Looking long-term, Rubano wants to make sure the district will be able to handle an emergency. He said the fund balance could be used for emergencies, but the continuing budget structure might make that unavailable. The district sets aside $50,000 in each budget in a reserve fund, but that’s not enough to handle a major repair, Pendel said. “We use it for just about anything,” he said.

If something like a roof needs to be replaced the board might have to raise property taxes to pay for the work, which could take “some mighty big mills,” Rubano said.

Another way to increase revenue is for new business or housing development to locate in the city, but much of proposed development for Farrell is tied to a Keystone Opportunity Zone. If that comes to fruition, development within the zone would be tax free for 12 years. Rubano said he is hopeful the development would generate spin-off businesses to serve businesses within the zone, but which would be located outside of the zone and be taxable.

The investment banking firm will not receive any fees up front, but a percentage would be negotiated later should the district take any action, Pendel said.

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Updated August 17, 1998
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