District to pay arbitrage liability as 2020 bond closes; investments to be reinvested at higher rates

Lee's Summit School District staff presented a 2020 bond closeout report and disclosed an arbitrage liability payment that must be remitted to the IRS, and discussed reinvestment strategy for bond proceeds and other district investments.

Dr. Herzog explained that the closeout package — prepared by bond counsel Gilmore & Bell — lists project expenditures for transparency, and identified the arbitrage liability as interest earnings above what the district paid on the bonds. “If we were paying 4% on the bonds and earning 5%, that 1% difference is arbitrage liability,” Dr. Herzog said. He noted a clerical correction in the packet about the schedule year but said the attached report contains the correct numbers.

On investments, Dr. Herzog said the district has been reinvesting proceeds from maturing agency securities into treasuries with higher yields: an agency piece that matured July 14 was reinvested at about 3.82% after previously earning 0.74%. He also said a high-coupon agency bond maturing in July 2027 had a callable date and was called, returning principal and interest; that security will be reinvested at lower rates expected in the high 3% to low 4% range. The district's liquid accounts remain above 4%.

No vote or motion was recorded in the instruction meeting transcript; the bond closeout and related payment appear as consent items on the board agenda. Dr. Herzog said the district has a plan to monitor arbitrage on the 2025 bond and that current market conditions leave the district below arbitrage liability at present.