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Interest rates lower due to Moody’s rating

Moody’s Investor Services evaluated the Hamilton School District’s financial status and judged it to be in strong fiscal health. That evaluation led to a MIG-1 rating — the highest possible for a short-term borrow. The high quality rating allowed the district to secure a short-term loan for 1.35 percent, saving the district an initial $25,000 over projections based on higher interest rates.

More important, Moody’s also affirmed the district’s strong Aa2 rating for long-term debt that will continue to provide significant interest savings over time. Ultimately, school officials hope to save $8.9 million by reducing the interest rate on a $4.23 million debt from 8 percent to 5.25 percent.

Higher financial ratings have a positive impact for taxpayers, according to Brian Hink, the Robert W. Baird financial analyst who handles Hamilton’s account.

“Because the district has strong financial ratings, overall debt payments will definitely be lower,” Hink said. “Higher ratings lead to lower interest rates on bonds.”

The debt is the district’s obligation for unfunded pension liability. School districts and municipalities were assessed the unfunded retirement liability in 1982 when three retirement systems merged. The School Board recently approved paying off the debt to the state with an interim short-term loan that will be refinanced into a 20-year loan. A special annual meeting in February or March may be held to authorize long-term refinancing of the debt that is expected to be at about 5.25 percent, according to Hamilton Business Services Director Bryan Ruud.

By taking out the interim short-term loan, the district avoided 2004 interest charges at the 8 percent rate, saving $337,000 in the first year alone.

In its evaluation, Moody’s Investor Services cited the district’s “strong financial position, continued tax base growth due to an advantageous location and moderate debt burden.”

“Moody’s believes the district’s financial position will remain strong due to prudent fiscal management and steady, enrollment growth,” the report stated.

Among positive aspects, the financial researcher noted a stable fund balance which allows the district to avoid cash flow borrowing to meet bill payments.