Interest rate spike keeps East Bethel from refinancing debt

East Bethel is no longer considering the refinancing of voter-approved debt issued in 2005 that made a fire station and weather warning sirens possible.

City staff recommended this decision at the March 21 East Bethel City Council meeting after learning that a 0.04 percent interest rate increase in the bond market would evaporate the savings that the city’s financial consultant Springsted, Inc. had originally projected in February.

According to City Administrator Jack Davis, this slight interest rate hike meant the city would have just saved $60,000. Back in February, Springsted President Kathy Aho said the city could save about $141,000.

Considering the city would have needed to spend about $50,000 now to get the debt refinanced and would have not started to see the savings until 2014, Davis said it was not worth refinancing to save $60,000 over a long period.

Bond sales include call dates after which the remaining debt can most easily be refinanced. The 2005 bond sale for the construction of Fire Station No. 1 on Viking Boulevard and for the installation of weather warning sirens throughout the community included an April 2014 call date.

Advanced refinancing can happen before a call date, but only once, so the city would have needed to gamble on whether interest rates would be lower now or a year from now, for example.

For the time being, East Bethel will wait to refinance the remaining $1.43 million of debt, which is being paid off through an annual property tax levy that is $147,328 in 2012. Voters approved these public safety projects.

Councilmember Steve Voss asked Davis if the bond sale could have occurred before the interest rates increased had the council approved the bond sale in February.

Davis said it could have happened, but it would have been close.

According to Davis, this bond issue was first presented to the council at the Feb. 15 meeting and the only action was for staff to work with Springsted on preparing the bond sale documents and bringing this information back to the March 7 council meeting for further discussion. This motion, originally made by Voss, was approved 4-0. Councilmember Bill Boyer was absent on Feb. 15.

There were four members of the council at the March 7 meeting. Boyer was present, but Voss was absent. A motion to authorize the advance refinancing of the debt failed because there was a tie vote. Mayor Richard Lawrence and Boyer voted to approve the refinancing. Councilmembers Heidi Moegerle and DeRoche voted against this motion that Lawrence made.

At the March 21 council meeting, Boyer and Moegerle were absent, but there was no vote because staff recommended not moving forward because of the interest rate increase.

Davis said the city incurred no costs from Springsted doing the initial evaluation. If there had not been the 2-2 split vote at the March 7 meeting, the refinancing process could have been stopped early, but Davis said the city would have incurred $7,500 in expenses for Springsted’s work in finalizing the preparation of the bond sale documents.

DeRoche said at the Feb. 15 council meeting when this bond issue first came up that he did not feel comfortable making a decision based on information he had received five days prior to the council meeting. The more he read, the more the information made sense, but some of it “looked Greek” to him.

“Experience has kind of showed me that there has been some decisions made without a lot of information and I’m not willing to do that,” DeRoche said Feb. 15.

Eric Hagen is at [email protected]