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By LINDA LOBECK
IRON MOUNTAIN - Iron Mountain City Council has approved a resolution authorizing the issuance of 2013 limited tax general obligation refunding bonds during a special meeting Monday night.
Voter approval is not needed to refund the bonds.
Along with the resolution, the council hired Miller Canfield of Detroit as the city's bond counsel, and Great Lakes Capital Markets LLC of Detroit as the financial adviser.
According to City Manager Jordan Stanchina, the fee for the bond counsel is $25,000. Miller Canfield was chosen because they have been used in the past by the city - probably since the 1970s.
A couple of changes to the financial adviser's agreement was recommended by City Attorney Gerry Pirkola and were included in the council's approval at Monday's meeting, The changes were made to the language of the agreement dealing with any dispute that would arise.
Finally, the resolution to authorize the refunding bonds was approved unanimously by the council despite some discussion and clarification on numbers.
In the resolution, the city is going to refund bonds "not to exceed $3,950,000 for the purpose of paying all or part of the cost of refunding the prior bonds in order to achieve interest cost savings for the benefit of the city and its taxpayers."
During the course of the discussion, Carol Bartolameoli, chief financial officer and Stanchina placed a call to Thomas Enright of Great Lakes to ask some questions about refunding and savings that the city will realize once this is done.
The city is looking to refund its 2004 bonds for the construction of water supply system capital improvements for the city. Approximately $4,100,000 remains on the principal of that bond issue, which without doing anything, would expire in 2034.
After looking at several different scenarios, the council agreed with the recommendation of the finance committee and city staff to go with putting in $295,000 in cash and refunding $3,805,000 in bonds that would expire in 2027.
This action will shave off about 7 1/2 years of the current bond. This choice will increase the annual debt service by $24,300 but, of course, that is for fewer years than the current bond. The gross savings with the refunding and this cash-in choice is $1,789,720.
The sale of the bonds opens on Dec. 12, with a closing date in January. In figuring out the various scenarios to consider on savings, the final figure will be determined by the rate they lock in to refund the bonds.
City council had also looked at putting no cash into the refunding as well as $575,000 for the cash-in amount. They weighed the options for each choice before settling on the middle ground. The cash being put into the refunding comes from the city's water and water capital improvement funds.
Stanchina added that he was more comfortable with the middle choice due to the fact that he really doesn't want to see too much money taken out of the funds. He said that the city is conducting a study of the water system and there may be some improvements or changes that have to be made to it. In addition, the money for the 25 Location project comes out this fund, too.
This option for refunding will also reduce the debt service in half by cutting the remaining years to pay on the bond in half.
In addition, by putting some cash-in to this process, it means that the city has to borrow less money. The city is paying four percent on the water bonds, and current interest rates have been much lower.
"What you're really saving is getting a lower interest rate on the whole amount and also by putting up $295,000," said Councilman Ted Corombos.
"We'll get a substantial savings any way we go," he said. "I just felt that putting in $595,000 in cash was too much risk. It would be better to keep a healthier fund balance in the water funds."
"We took the middle-of-the road choice, and it will bring savings," he said. "We just raised the water rates and that will help us maintain the level of service we need and what else we need to do."
Although the annual debt service increases somewhat with the refunding process, the savings to the city is approximately $300,000 a year. This is a substantial savings when looking that the fact that the refunding will knock off 7 1/2 years off the life of the bond.
Mayor Bruce Rosen felt that this is a wise thing for the city to be doing at this time.
"It's a no-brainer as to why we are doing this now," Corombos added.
After much discussion, the council all agreed that the refunding process would maximize the long-term savings to the city with the cash-in option of $295,000.
Linda Lobeck's e-mail address is email@example.com.