A Memphis firm was the lowest bidder for a city of Andover bond refinancing on the remaining construction debt of the Andover YMCA/Community Center.
Mark Ruff of Ehlers, the city’s financial adviser, told the Andover City council Dec. 4 that the Raymond James firm proposed a 2.5635 percent interest rate for Andover to sell $17.4 million worth of bonds. The city previously had an interest rate of 4.4 percent, according to City Administrator Jim Dickinson, who had hoped to get a 2.62 percent interest rate.
“I really can’t say enough good things about what happened today,” Ruff said.
Dickinson’s financial background really helped in this refinancing process, up until the day the council voted, he said. The closing date for the bond sale is Dec. 27.
Over the remaining debt service payments, the city is slated to save over $4 million, Ruff said. In present day dollars, the savings is approximately $2.6 million. This is a 12 percent savings, Ruff said. State law requires at least a 3 percent savings, so Andover is four times greater than that threshold.
Dickinson previously estimated the city would be able to chop off the last two years of debt service payments in the early 2030s. The city will be able to eliminate the last three annual payments, so the city will make its last payment in 2031 instead of 2034. The city will also be able to reduce its annual debt service payment leading up to 2031 by approximately $50,000 each year.
The bond sale was just one step in a process that ultimately transfers ownership of the Andover YMCA/Community Center from the Andover Economic Development Authority (EDA) to the city itself. The city council abated property taxes within three-quarters of a mile of the facility, but these property owners would still pay taxes. The tax revenue would finance this transfer of ownership.
An EDA is essentially the development arm of a community. It has its own taxing authority and governing body, which in Andover includes the entire city council and two additional representatives that the council appoints.
The EDA had already refinanced the community center debt in 2006 and 2007. The EDA had lease revenue bonds on the facility. The city issued general obligation bonds.
The revenue sources will be similar, such as the annual YMCA payment of $635,000, but the city has a financial obligation to pay off the debt even if the community center revenues go south.
Dickinson said the city always had the option of not appropriating the levy funds to the EDA to pay off the construction debt, so bond buyers look at lease revenue bonds as a greater investment risk than general obligation bonds and therefore offer a higher interest rate.
Andover has a bond rating of AA+, which is the second highest rating a city can get.
“That means lower interest costs for you overall,” Ruff said.
The bond rating report from Standard & Poor’s states the positives of the city are very strong reserves and six years of operating surpluses. Andover also has a low amount of debt burden when comparing it to other communities, Ruff said.
“The fact that you budget well, you budget conservatively and you do what you say you’re going to do is very important to the rating agencies,” Ruff said.
The bonds are taxable because the city previously refinanced the bonds of the community center with non-taxable bonds and this cannot happen more than once, Ruff said.
One plus side of this is the city can now lease space at the community center to a private entity. This was not allowed when the facility had the non-taxable bond debt hanging over its head.
Dickinson does not anticipate the city utilizing this because it already has a good partner in the YMCA, he said.
Andover is looking to lease its concession stand space to Subway, but the concession stand was always designated as a for profit area, so the city would have been allowed to lease this space even under the old taxable bonds rules.
Eric Hagen is at [email protected]