At the January 12 Lancaster City Council meeting, Council voted to authorize the issuance of $9.5 million in General Obligation Bonds. This was the result of an auction held earlier that day to refinance a set of 2003 bonds, according to city administrator Patrick Hopkins. Wells Fargo came in with the lowest bid “by far,” Hopkins said, with an interest rate of 3.72%. As a result of the switch, the City will see a net savings of $270,745.
“It’s plain vanilla refinancing of fixed rate bonds to a new fixed rate—just a lower one. It’s essentially like refinancing a mortgage,” Hopkins told NewsLanc. The bonds were originally issued in 2003 under terms that prohibited refinancing for a five year period. In 2008, at the end of that period, Hopkins said, the City began watching the market for the best opportunity to refinance.
The auction was scheduled last week.
According to Hopkins, “Back in November…we said, ‘It looks like over the next couple of months we could have an opportunity to refinance this.’ So we had them do the first reading of the ordinance so that we could act very quickly.” In this regard, Mayor Rick Gray credited Hopkins for the good timing: “This occurred because [Hopkins] closely monitored the market and pursued City Council’s advanced authority to move when the time was right,” Gray said.
Gray noted that savings were also boosted due to a level bond rating for the City. “Moody [Investors] cited a recent tax increase and workforce reduction actions by the City as a display of [willingness] to confront fiscal problems, rather than to be in a state of denial, and decided to not downgrade the City’s bond rating.” Gray concluded by commending Council for “making the difficult choices” involved in the 2010 budget process.
According to Hopkins, 92% of the savings—about $250,000—will be directed to General Fund deficit reduction. “The budget as passed included using $1,263,000 from our reserves,” Hopkins told NewsLanc, “So this will reduce that use of reserves.” The remaining dollars will be directed to the City’s Water Fund.
What about the other 8%?
And if the city was so willing to take money from the reserve to balance the budget, why not just write off that $250K and use it to keep police and firefighters on the street?
Its nice to know that bean counters view our city’s willingness to sacrifice safety as a positive indication of the city’s credit worthiness. I guess it goes to show that our city administration doesn’t have an economy on stupidity.
What about the other 8%? To the water fund, since the balance of the original loan was for work in preparation of the new water treatment plants. The money to the water fund is in direct proportion to the amount of the original bond sale which was for the water fund.
You might find it interesting to note that Moody’s has reaffirmed Lancaster City’s investment-grade credit rating. Moody’s analysis specifically stated that had the mayor and City Council not taken decisive action to limit the City’s budget deficit, Lancaster’s credit rating would have fallen to junk bond status – costing taxpayers huge sums of money in additional interest costs over many years.