City bonds for Main Street project -
$2.7 million in GO bonds over 20 years
Tuesday, June 25, 2013 8:19 AM
On June 18, the Spring Grove City Council voted to accept an offer from United Bankers' Bank (UBB) of Bloomington for the sale of its $2,725,000 of General Obligation (GO) Improvement and Utility Bonds, Series 2013A.
UBB offered a net interest rate of 3.4744 percent. There was only one other offer from Robert W. Baird & Co. Inc. at 3.7389 percent.
Financial Advisor Michael Bubany of David Drown Associates told the council that the Standard & Poor's rating for Spring Grove came in at "A/Stable" which is not as desirable as an "A" or "A+."
"I had a chat with the analyst at Standard & Poor's asking what sort of things we could do to achieve it (a higher rating), and actually, there's very little.
"In terms of financial health, you are stable enough. Most of the things that prevent you from being an A+ community are things outside your control. For instance, the top 10 of your taxpayers represent 28 percent of your tax base. They would rather see that less than 25 percent.
"Things like the median income of the community... those are things that are outside the council's control. I think you're doing about as good as you can."
Payable from 2014 through 2034, the city will incur a net interest cost of $1,118,644 over the 20-year span. Beginning in 2021, the bonds can be redeemed without paying a penalty, Bubany stated.
"I was asked before the meeting if I had good news tonight, and unfortunately with interest rates, I didn't have good news. I think if there is any good news, it's two parts - one is, we're under our planning figures, which date from the very beginning (of this project).
"Secondly, even though you haven't isolated everything 100 percent yet, we are a long ways towards dealing with these payments."
Even though bond rates are sharply lower than they were as recently as 2008-09, they have crept up over the last several months, Bubany reported.
The estimated total impact of the bond payments on a $125,000 home would be about $27.22 per month, he added.
However, with a positive cash flow from current water and sewer rates, and the possibility of further budget adjustments, the city may be able to lessen further impacts to homeowners, Bubany said.
"These impacts are based on the council raising every dollar as a brand-new dollar, and we have talked in the past about shifting some current revenue streams to help pay for this," he noted.
"I think that $25-$30 amount is the right figure, but I also think you can reduce that greatly by taking advantage of revenues you are already generating."
The closing on the sale is July 8. Two percent of the bond proceeds have already been deposited by the bidder, Bubany noted.
The City of Spring Grove will be able to reimburse itself for already spent project-engineering costs from the bond monies when the sale is finalized. Those payments have so far been taken from the general fund, council members stated.