City looks at another bonding avenue

by Emmitt B. Feldner of The Review staff

PLYMOUTH – The city is looking at a new direction for refinancing $3.87 million worth of Build America Bonds first issued in 2007.

The City Council Tuesday authorized Ehlers and Associates, the city’s financial adviser, to pursue a general obligation bond issue to pay off the balance on the six-year-old bond issue.

The city was poised to reissue the bonds as utility revenue bonds in June, but cancelled those plans when interest rates on municipal bonds rose to the point that any potential savings were pretty much wiped out, Phil Cosson of Ehlers told the council.

“We have continued to see rates at higher levels and kind of suspect that this might be our new norm,” Cosson said.

The city is able to pursue refinancing the BA bonds because of the impact of the federal budget sequester.

Unlike other municipal bonds, the BA bonds were issued as taxable bonds, but the city was eligible for a 35 percent rebate from the Internal Revenue Service on its annual interest payments, thus making them less expensive than tax-exempt municipal bonds.

With the sequester, that rebate was reduced by 8.7 percent, triggering a clause in the bond issue enabling the city to call in the bonds and refinance the remaining debt.

Cosson said the city had three options – to do nothing and leave the current BA bonds in place, reissue as utility revenue bonds as was planned in June, or reissue as general obligation bonds of the city.

Doing nothing, the told the council, “as it stands, there would be a reduced rebate payment, but that could change – or it could not.”

General obligation bonds would likely sell at a lower interest rate than the utility revenue bonds and thus mean more savings for the city, Cosson added.

“The reason to do that is to maximize savings,” Cosson said of the GO bond option. “But the downside is you are using up some of the city’s borrowing capacity.”

“I just don’t see us borrowing any significant amount on a general obligation basis any time soon,” City Administrator Brian Yerges said when asked for his opinion on the three options.

“I would just go on the GO basis because of the greater savings,” he added.

Cosson said the savings to the city over the 15- year life of the bonds would be around $260,000 with general obligation bonds, compared to around $180,000 on the utility revenue bonds.

“I believe the savings are hard to ignore,” Alderperson Shawn Marcom agreed.

After discussing the issue in closed session, the council voted to authorize City Attorney Crystal Fieber to begin legal proceedings to abate a public nuisance at 502 Reed St.

Several neighbors of the Reed Street home came to the council in June with their concerns about the state of the property and its upkeep, which they said was negatively impacting their homes and properties.

One had gone so far as to file a written complaint with the city because grass at the home had not been cut for more than three weeks.

The council also directed Fieber to pursue legal action to dismiss a claim for excess assessment from the owners of the Plymouth Commons shopping center on Eastern Avenue.

Agree Limited Partnership/RCG Ventures, owners of the mall which includes Pick ‘n Save and K mart/ Sears, have been seeking a reduced assessment from the city for the 24-year-old shopping center.

The council approved the compliance maintenance report to the state Department of Natural Resources.

Director of Public Works Bill Immich noted that the city received a perfect grade of 4.0 on treatment plant operations.

“Everybody at the utilities is doing a good job maintaining things and keeping it operating properly,” Immich commented.

“I just want to thank Mike Penkwitz and his staff for achieving a 4.0,” Alderperson Jackie Jarvis added.

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