When the Hudson Falls, N.Y., Central School District needed to borrow for capital spending last year it went on its own to the market. This year it's going through the Dormitory Authority of the State of New York and it's not alone.

DASNY's $359.7 million revenue bond deal pricing for retail today will finance and refinance capital expenditures for 32 school districts. It's the largest offering under the school program since it began in 2002.

"This year, with the economy, I don't feel comfortable at all about going on out into the public market," said Vince Canini, director of business services for the Hudson Falls schools. Last year, the rural upstate district, which serves a population of 13,000, sold $20.1 million of bonds and $3.9 million of bond anticipation notes.

But market participants say that volatility, a higher interest rate environment, and the way the state calculates reimbursement for school capital costs means that more districts are looking to DASNY.

The state Department of Education sets a maximum cost for what is eligible for state aid reimbursement for each district based on a formula that considers the wealth of the district. State aid will cover a percentage of the cost of those capital projects and the district will be responsible for whatever is not covered, the "local share" of the costs.

Included in the aid are interest costs on debt. When a district borrows on its own, the cost of interest is calculated from the average cost of interest on school bonds and Bans sold during the 12 month period during which the project was approved by the Education Department. For projects approved between July 1, 2007, and June 30, 2008, the rate is 3.625%. If a district thinks it can't sell debt at that rate or better on its own, it can go through DASNY as part of a pooled financing.

"When we did a comparison of the public market and DASNY we saw that the state would reimburse whatever DASNY's rate is regardless of whether or not it's above the state average," Canini said. "If I go out and get a public market borrowing and if it's higher than the state average because the economy's still in the toilet, my local taxpayers would shoot me."

Borrowing through the DASNY program has some costs that going to market alone doesn't, such as the statewide bond issuance fee which applies to DASNY issues but not to school districts. Being part of a pooled issue also gives the borrower less flexibility but Mark Vislosky, chief executive officer of Fiscal Advisors and Marketing Inc., said in the current volatile market it makes more sense for some of his clients - seven of which are part of this issue - to go through DASNY.

"If you've got to make a decision three months before you're going to issue bonds where the market's going be, it's too costly to say to a district, 'Well, let's just wait to see what's going to happen in June, we'll structure an issue to go on your own, and then if the rates don't come in good we'll just cancel the bids and go though DASNY,' " Vislosky said.

In 2002, the authority sold $1 billion of bonds under the program, which was its first year - and a year in which many districts chose to refinance debt because of changes in state law. From 2003 through 2007, DASNY typically sold less then $50 million of bonds under the program each year, according to Thomson Reuters. Last year that changed, with the authority selling $230.4 million. This week's issue will bring the 2009 total to $422 million.

"We always figured this would happen in a market of higher interest rates, that more and more school districts would come through DASNY versus issuing on their own," said the agency's public finance director, David Kvam. "We're getting swamped."

The tax-exempt bonds will be marketed in four subseries that correspond to school districts and groups of districts: Series 2009B for $180.7 million, Series 2009C for $157.1 million, Series 2009D for $15.4 million, and Series 2009E for $2.3 million. Today's retail order period will be followed by institutional pricing tomorrow.

Winston & Strawn LLP is bond counsel. RBC Capital Markets and Roosevelt & Cross Inc. will senior manage the deal.

School districts have their own financial advisers. They include Bernard P. Donegan Inc., Fiscal Advisors and Marketing Inc., New York Municipal Advisors Corp., and Capital Markets Advisors LLC.

Standard & Poor's rates the bonds A-plus with stable outlook. Moody's Investors Service assigns its A2 rating to Series B and E, its A1 rating to Series C and its Aa3 rating to Series D. Moody's assigns different ratings to the series based on a blend of the strength of the intercept of state aid and districts' individual ratings.

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