By VICKI URBANIK

The Duneland School Board plans to refinance the bond that funded the new Chesterton High School, a move that’s expected to reduce the tax impact of a possible new elementary school.

The school board unanimously agreed Monday to authorize a refunding of the 1999 bond, which has a balance of about $76.3 million. That bond, first issued several years earlier to finance the new CHS, is one of two outstanding debt obligations of the Duneland Schools; the other bond, which has a balance of $17.3 million, was issued in 2001 to provide cash for debt obligations after the Bethlehem Steel bankruptcy and cannot be refinanced.

By refinancing the 1999 bond, the school corporation is expected to secure a new interest rate estimated at 3.8 percent, lower than the current rate of 5 percent. That in turn would save an overall $2.78 million in interest costs through the year 2019.

Curt Pletcher with the financial consulting firm of Umbaugh & Associates outlined two options for handling the savings at Monday’s school board meeting. One option is to spread the savings over the remaining years of the bond, reducing the bond payments by about $264,000 annually until 2019.

The other option calls for targeting most of the savings in just two years -- in 2010 and ‘11 -- when local taxpayers might begin paying for a new school. The savings in each of these two years is estimated at $1.2 million, which in turn would cut the size of the bond for the new school and reduce its tax impact. In 2012, the annual savings on the refinanced bond would be less, at about $2,432.

School board member Janice Custer at first made a motion to proceed with the second option, but the board decided to grant authority to pursue the refinancing and then to decide the particular savings option later.

In the interim, Pletcher said he will prepare projections on the school corporation’s assessed value and the impact on the local tax rate. He said the anticipated growth in the AV should counter the tax impact of a new school bond in 2012, when the bulk of the savings from the refinanced bond would already be realized. On the other hand, he also noted that under Indiana’s new tax law, House Enrolled Act 1001, homeowners will get a new supplemental homestead deduction, which will lower the overall AV. He said the new deduction could cut Duneland’s AV by around 12 to 14 percent.

School Board member Ron Stone urged that Umbaugh negotiate with bond underwriters to try to lower the costs of the refinancing, which are expected to be in the range of $231,100 for an underwriters discount and $125,000 for legal fees and other issuance costs. Stone noted that it would take two years to recoup the fees for the refinancing.

Custer also questioned how the current turmoil on Wall Street would impact the bond refinancing. Pletcher said it’s hoped that the bond market won’t be affected much by the financial troubles and noted school bonds need to be secure. But he also said that because the bonds won’t be sold for a number of weeks, the market will be watched for any possible negative impact. Both he and Custer also noted the possibility that interest rates will be cut.

In May, the school board approved the purchase of 37.8 acres at C.R. 1050N and 250E for two new possible schools and a town park. In the meantime, a school-community committee, known as the Duneland Key Communicator Group, recommended building a new elementary school as well as technology purchases district-wide.

The school board has not yet finalized a decision on building a new school.

Posted 9/16/2008