Twelve Utah school districts have planted a hedge against possible future rises in bond interest rates - the likes of which occurred in the early 1980s.
Representatives of the Federal Reserve announced this week that interest rates are likely to go up again.The districts, united as the Utah School District Finance Cooperative, approved a $200 million bond resolution Thursday that guarantees to hold rates steady at 8.36 percent over the next 10 years. The cooperative members are Sevier, Ogden, Tintic, Jordan, Grand, North Sanpete, North Summit, Juab, Rich, South Summit, Cache and Duchesne districts.
The districts united under interlocal agreement provisions to guarantee a stable interest rate and to better their joint bond rating.
The money will be available to the member districts for capital improvements. The cooperative's executive committee will consider projects and approve districts' tapping into the $200 million.
Richard Young of Boettcher & Co. Inc., the underwriter, explained to committee members that the money will be accessible in increments, with $20 million available in 1989; $35 million in 1990; $40 million each for 1991 and 1992; $25 million in 1993; and $20 million each in 1994 and 1995.
Fluctuations in bond interest rates make it difficult for school districts to plan for major capital improvement projects. The resolution signed Thursday will give them stability in planning for long-term financial needs, said Ruth Jackson, Sevier District, who heads the committee.
Young said the costs for preparing and underwriting bond issues will be slightly higher than usual because of the guaranteed interest. The financial institutions involved in the agreement will not get paid at all unless the districts choose to use the available bond money, he noted.
The money will be invested in a Swiss bank at a rate equal to the bond interest until districts borrow against it, Young said.
First Security Bank of Utah was appointed trustee, registrar and paying agent for the bonds.