Demand for bonds helps temper potential construction cost fluctuations.
On July 11, Salem-Keizer Public Schools (SKPS) offered close to $385 million in construction bonds for sale in the bond market in its first issue following the approval of a $619.7 million bond measure on May 15.
Demand for the bonds was high, and all bonds offered for sale were purchased within 90 minutes of the market opening. “Salem-Keizer is seen as a secure investment, and our bonds are highly rated, which may explain why our bonds sold so quickly,” said Sarah Head, director of budget and finance. “Demand is important because it reduces costs and provides the opportunity to earn premiums on the sales, which helps temper future increases in construction costs.”
There were also more orders for Salem-Keizer bonds than available inventory. “We had more than $2 billion in orders for our $385 million issue, so there was a lot of competition in the market for Salem-Keizer’s bonds,” said Head.
Although voters approved a total of $619.7 million in bond debt in the May election, the district has only offered about 60 percent of the total for sale in the first issue. Bonds will be issued again in the future for the remainder of the approved total. “There are a few reasons for doing this, but one of the biggest ones is because it doesn’t make financial sense to incur debt before you need the funds. The amount of money needed is related to the construction schedule,” said Mike Wolfe, chief operations officer. “Also, breaking the sale of the bond package into chunks also spreads out the repayment and levy rate increase over time, which is a benefit to the taxpayer.”
The current construction schedule can be seen on the district website on the 2018 Bond Program page. The schedule is aggressive and plans to finish work planned in the bond program within about five years.
The SKPS Construction Services Department has been closely monitoring construction costs in the area. “We’ve seen the news about cost increases in neighboring school district bond programs, and we’re preparing to address the situation if we see costs increases here,” said Wolfe. “We’re working to both control expenses and increase revenue because we’re serious about delivering on the promises we made in the bond.”