DALLAS - Oklahoma's Tulsa County Independent School District No. 5 is considering using lease revenue bonds issued by a separate public property corporation to finance new facilities rather than relying on conventional general obligation debt.

The proposed public property corporation would issue the lease-revenue bonds, use the proceeds to build the facilities, and lease them to the district. The corporation would support the bonds with the proceeds from the school district's GO bonds that would be pledged as lease payments for the facilities.

Trustees of the district, which serves the fast-growing Tulsa suburb of Jenks, last week authorized district administrators to continue research and discussions into the funding option. The decision came after the district's financial adviser, Stephen McDonald of Stephen H. McDonald & Associates Inc., outlined the proposal at a public meeting.

McDonald said the lease-revenue option allows school districts to build the facilities at current prices, pay current low interest rates on the debt, and occupy the new facilities years before they otherwise could with conventional bond financing.

School districts in Oklahoma cannot have outstanding debt equivalent to more than 10% of the net assessed property values in the district, McDonald said. As a result, he said, districts often must finance needed improvements over many years.

"What happens is that a district will issue bonds that bring it to the 10% limit, and the proceeds are used to finance phase one of a school project," he said. "In a few years when some of the outstanding debt has been retired and the property values have grown, they issue more bonds to bring it to the 10% limit and use the proceeds to finance phase two. Then a few years later they issue more debt, and complete the work years after it has begun."

With revenue bonds, McDonald said, voters are asked to authorize the amount of bonds necessary to complete the entire project rather than what can be accommodated under the 10% limit. This does not violate state law because the bonds are not issued until the capacity is available, he said.

"When you finance projects over a long term with GO bonds, you run the risk of interest rates going up, construction costs going up, and it just takes a long time to meet the needs of the district," McDonald said. "With the lease revenue bonds, a district can move into those facilities within 18 to 24 months of the issuance."

In a letter to Jenks residents inviting them to the informational meeting on the lease revenue bond concept, school superintendent Kirby Lehman said the district could be asking approval of a $100 million GO bond package within a year.

"This is a financial process that is very complex, but it permits the construction of many projects simultaneously and very soon after a successful bond election," Lehman said. "These are projects that would normally take more than a decade to complete, and we believe we can complete those projects in two or three years."

Proceeds from the first tranche of bonds would go into the construction fund, with successive issues dedicated to the lease payments.

McDonald said a bond issue of $132 million would allow the Jenks district to complete its current capital improvement program within two years.

"If the district did this with conventional financing, the projects would not be completed until 2030 at a total cost of $237 million," McDonald said. "The lease revenue bonds would save at least $105 million. That assumes a 10% inflation in the cost of construction materials and I think that is conservative."

As the lease payments are made, McDonald said, the district would acquire a portion of the financed projects. When the bonds mature, the district would own the facilities.

The school district is rated Aa3 by Moody's Investors Service.

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