Government shutdown could add $320,000 to Southwest School Corp construction bond payment

Huntingburg — Southwest School Corporation’s tax payers may be feeling the sting of the government shutdown in the coming months.

According to the Southwest School Corporation attorney, Phil Schneider, the approximately $12 million in bonds used to pay for the Southridge Middle School and High School renovations may cost the school corporation — and taxpayers — considerably more than expected if the government shutdown continues.

Southwest took advantage of the special no-interest bonds created through the stimulus bill — the American Recovery and Reinvestment Act of 2009 — called Qualified School Construction Bonds for the renovation project. The bonds allow schools to borrow money at a low or zero interest rate to be used for the rehabilitation, repair and equipping of schools.

The school corporation pays the principal on the bond and the federal government provides a subsidy to pay the interest.

The across-the-board spending cuts known as sequestration that started this spring already decreased the amount of the government subsidy on the interest of the bonds by 8.7 percent. This forced the school corporation to absorb over $52,000 a year for the increased payment on the interest on the $12 million bond.

With the government shutdown, an additional $320,000 in interest subsidy may not be paid by the due date of the next payment on the bond.

The bond payments are paid in January and July. Two months prior to the payment the school corporation files for the subsidy through the Internal Revenue Service. The school corporation deposits their payment into sinking fund held by a bond trustee — in this case, German American Bank — by December 30. On January 10, the trustee makes the payment on the school corporation’s portion of the bond and the U.S. Treasury makes the payment on the interest.

According to Schneider, with the shutdown, the school corporation may have to pay for all of the accrued interest on the bond for the interest payment the Treasury doesn’t cover.

Schneider voiced concern over how the payment will be made by the Treasury even if the shutdown, now in its tenth day, is concluded before the end of the year. “I don’t know how this will affect the payment on that interest,” he said. “We hope something will be done. Surely, congress will come to some kind of conclusion. But, I don’t know if the 8.7 percent will ever come back, we may be shorted that 8.7 percent interest subsidy for the life of the bond.”

No other school corporation in the county has used the qualified bond program.