Financial adviser: Little Falls can save $300,000 later, if it borrows money now
David Drown of David Drown Associates has been making the rounds to area cities with some good news: Cities can save money by refinancing loans and bonds at very low interest rates.
Interest rates, that Drown said are the lowest he’s seen in his career, are down by “a lot.”
Anything that can be refinanced is worth looking at, he said.
Monday night at the Little Falls City Council work session, Drown said the city had two bonds issued in 2006, $1.3 million for street projects and another $1.2 million project done through the city’s Economic Development Authority (EDA) for its public works garage.
These bonds carry a 4 percent to 4.5 percent interest rate. With the current interest rates at just under 2 percent, Drown said the city could save $300,000 net over the remaining life of the two bonds. Currently, payments will be made on the two bonds until 2027.
While the bonds cannot be refinanced until February 2014, when they are “callable,” Drown said the city could borrow the money early and put it in the bank until that time.
Drown said the financing for the public works building was a complicated deal, with the EDA borrowing the money, the city making lease payments to the EDA and the EDA repaying the loan.
Since that deal was done in 2006, the state has come up with a better way for cities to borrow money for city buildings, Drown said.
He said replacing the complicated lease transaction with a readily understood general obligation fund means a lower interest rate is available.
However, the process requires identification of all of the projects the city is going to issue this type of bond for over the next five years. The public works garage is the only project Drown said he knew of.
In addition, a public hearing must be held for the refinancing of the bond for the public works garage. “So the public knows what we are going to do and how we’re going to do it,” he said.
Once the public hearing is held, the public has 30 days to petition the city to block the process. The petition would have to carry 5 percent of the total number of voters in the city who voted in the last General Election.
“If the public is convinced that by going through this process, we can save $130,000 of future taxpayer money, it probably won’t be opposed, then in 30 days we can move forward with bond issue,” said Drown.
The refinancing is not without costs. Drown said the underwriting fee will be about $32,000 and issuance costs about $36,000. Even after that, the city will save $300,000 on its future bond payments.
“We’re paying money upfront and an extra interest fee for now, to save $300,000,” said Drown.
Interim City Administrator Dan Vogt asked what the city would pay in transition costs, should a petition be received.
Drown said should a petition be received to block the process, the city would be out the rate issuance fee of about $7,500. “I think anybody else that touches this deal will be working on a contingency basis, so if it doesn’t happen, it sits,” said Drown.
“What you’re gambling is whether a year from February will the interest rates be less than 2 percent,” said Klinker. “I doubt it.”
Drown said the numbers look pretty good.
During its regular meeting, the Council voted unanimously to call for a public hearing to be held Monday, Nov. 5, at 7:30 p.m. during its regular meeting.
Those unable to attend the public hearing can make a written comment and submit it to the city administrator at City Hall.
Little Falls City Council Briefs
In other business Monday, during its work session, with all members present except Mayor Cathy VanRisseghem, the Council:
• Heard a presentation by Kris VonBerge, executive director of the Little Falls Convention and Visitors Bureau, outlining ideas to bring tourists to the city all winter long, including bus tours and get-aways in presidential styles with stays at area hotels and attractions. She requested funding from the city’s tourism fund to pay for advertising in Metro areas. The Council will discuss it at its next budget meeting;
• Learned from Public Works Director Jerry Lochner that city staff is looking at alternate power connections, with a more secure route for the cables, between the main wastewater treatment facility on the east side and the west side lift station;
• Learned from Lochner that the Minnesota Department of Transportation (MnDOT) has a shed-type building that can house the equipment for the 800 megahertz radio antenna that will be placed on the water tower on the east side of the city. The shed will protect the equipment and make it easier to maintain if there are issues. The city must lay a 12-foot by 30-foot cement slab, with MnDOT-required rerod to set the building in place. The costs involved would be staff time to do the cement work, as MnDOT will pay for supplies;
During its regular meeting, the Council:
• Approved a labor agreement with the International Union of Operating Engineers, Local 49. Following negotiations, the Union and the city agreed to a 3 percent increase effective this past Jan. 1 with no step movement; and a 2 percent general increase with a half step increase effective Jan. 1, 2013. On a roll call vote in VanRisseghem’s absence, council members voting to approve the agreement were Lee Ann Doucette, Loren Boyum, Don Klinker, Urban Otremba, Jeremy Hanfler and Frank Gosiak. Voting against was Brian-Paul Crowder;
• Approved unanimously underlying zoning resolutions for eight properties in the city and to deny underlying zoning for three properties where it was not required, all as recommended by the Planning Commission;
• Approved posting the position of park maintenance worker vacated by Keith Schuman, within the union;
• Approved an amendment to the taxi cab portion of the city’s business and regulation licensing ordinance;
• Authorized the rehabilitation of the stone wall on the south side of the Pine Grove Zoo by Pat Kuffel, at $32 per hour. It is estimated that each of the eight pillars or end sections of the wall will take 40 – 50 hours each to rehabilitate, with the total not to exceed $10,000. The funds will come from the city’s Park Improvement Fund;
• Approved the $75,381.96 bid from Tri-City Paving of Little Falls to complete bituminous overlays on Thirteenth Street Northeast between First and Third Avenues; Eighth Street Northwest between Third and Ninth Avenues; Sixth Avenue Northeast between Ninth and Eleventh Streets; and the southerly section of the alley between First and Second Streets Southeast just north of Second Avenue Southeast.
Hanfler said he was baffled that the city was doing work to alleys when streets need to be done. Crowder said he was disappointed that the First Street Northwest project had not been done this year;
• Approved unanimously running four water mains and service lines on Fifth Street Northeast between Seventh Avenue Northeast and a point approximately 320 feet south of Seventh Avenue. The city received a petition from three residents in the area for the work, one who had a well that had run dry and had no water. The work will begin Monday, and will cost $33,156, with 46 percent being assessed to homeowners ($15,125) and the city paying the remainder ($18,031);
• Authorized submitting a grant under the Safety Grant Program to assist in the purchase of gas meters, manhole cover lift, chain saw chaps and confined space safety equipment. The grant, if received, requires a 50 percent match by the city; and
• Accepted a $5,000 donation from the West Side Improvement Association for improvements including a new backstop, cement slab for bleachers, benches and eventually new dugouts, at the Jaycee Park/Lindbergh Lions Recreation Complex in west Little Falls.
The City Council will meet Tuesday at 6 p.m. in the conference room at City Hall to discuss the city’s budget.
The next regularly scheduled council meeting will be held Monday, Nov. 5, at City Hall, at 7:30 p.m. A work session begins at 6:30 p.m. in the conference room.