Lower interest rate will save town $220k on bond issue
The lowest bid last Thursday for the town's $3.3 million bond issue was 3.998975 percent as the "true interest cost" to borrow the money to pay for the new town hall.
The cost was .65 percent less than the 4.65 percent budgeted for the bond.
The lower-than-expected rate will save the town $220,000 over the 20-year term of the issue, according to Town Administrator Bruce Keiser and Town Finance Director Christina Collins. They had been optimistic that the rate might be about 4.5 percent or a little less, so they were delighted about the "success" of the town's bid offering.
Keiser said, "We were shocked. We were pleasantly surprised. We were astonished. We were very happy." Council President David Long added, "We are extremely happy for all of us."
Keiser and Collins announced the bid results last Thursday at a budget workshop of the Town Council. Keiser and councilors heaped praise on Collins for guiding the latest bond issue, her managing and tracking the overall debt service program for the town, and the budgeting practices she follows in achieving the town's financial stability. Her work was seen as instrumental in the town getting its new Aa3 Moodys Investment Services rating, which was announced just days before the bid opening.
UBS of New York City, a corporate office of Union Bank of Switzerland, submitted the low bid.
The actual closing for the sale is set for April 4.
UBS was one of four bidders for the bond issue. The others were Roosevelt & Cross, 4.01078 percent; Eastern Bank Capital Markets, 4.046771; and Merrill Lynch & Co., 4.241997.
Moodys increased its rating for the town to Aa3, just in time for the bond sale. Jamestown is now one of nine communities in the state with such a high (Aa or better) rating. Moodys, a leading international provider of independent credit ratings and financial information, previously rated the town as A1 when bonds for $5.87 million were sold in 2004 for general obligation. The new rating now applies to that account, as well as the new account and two others: general obligation bonds in 1987 and 1991.
Moodys ratings are based on several factors relating to municipal finance: economy, debt, finances, administration/management strategies, and the municipality's ability to repay its debt.
Collins said that the rating upgrade reflects the town's commitment to maintaining healthy reserves, conservative budgeting practices, and prudent debt management. Notable are also four years of consecutive operating surpluses, she added.
The finance director prepared an extensive report on the status of the town's debt service for the council. Keiser said that the town debt service status, including the new rating and the low bond rate, "are the big news of this budget" in reference to bonds for the new town hall and for farmland preservation. He called the purchase of farmland development rights "the crown jewel" of all budget planning and said it will "fix the character of the island forever."
Keiser emphasized that the town farmland preservation program does not offset, but rather complements the University of Rhode Island farmland innovations program, which is under development.
Collins' report showed that next year's debt budget peaks at $1,229,834, including $464,334 in interest. The total the town owes through 2037 is $17,337,549, including $5,521,048 in interest. The summaries include the new $3.3 million bond to be sold next month and $3 million for farmland preservation, to be scheduled for voter approval. The summaries do not include estimates for landfill closure; or for a new highway barn, regardless of where it is located, officials noted. Consultants last year estimated the landfill work will cost $628,000, without provision for the barn there. Keiser said he is expecting the barn to cost about $1.5 million, regardless of where it is built. He said he expects to be including the landfill and barn costs in bonding to start in 2008-09.
He also said that multi-million dollar bonds for water and sewer work are not included in the town debt service summaries because those items are paid directly by ratepayers for those utilities. He said those bonds are considered in ratings for the town, which serves as a co-signer for those loans.