Little Falls will go a bit of a different route than usual in paying off its 2021 public improvement projects.
Little Falls Finance Officer Lori Kasella told the City Council, Monday, that the usual course is to sell bonds to cover street projects. In talking with Jason Murray of David Drown Associates, he recommended the city does a negotiated sale of those bonds this year, rather than going through a competitive bidding process.
Kasella added that she was waiting to start the process until her eventual replacement — Hannah Kurkowski — was hired so she could partake in and get a feel for what needs to be done in regard to the sale of bonds.
“This morning when I woke up and I was watching the news — listening to the news — the first thing they talked about was the (Federal Reserve) meeting this week and the potential of interest rate hikes coming,” Murray said. “Knowing the timing of this sale and the potential moving through this bond, the best route to avoid this looming interest rate hike, was to do a direct bank placement.”
The bank placement would be to Webster Bank in the amount of $2.856 million with a 3.3% interest rate over a term of just more than 15 years. That equals a total annual debt service payment of about $245,000 for the life of the term. That money comes from a combination of tax levy and special assessments.
On the projects in question, the city assessed about 33% of the cost to benefiting property owners. That comes out to $598,976.01 over 15 years, with a 3% interest rate.
Murray said, under normal circumstances, he would recommend the city to begin a 30- to 45-day process that would result in the sale of general obligation bonds. That would begin with his office working with staff to get a rating done and then scheduling bids on the sale. He would eventually recommend a sale to the Council.
“Knowing that the feds are meeting this week and there’s a potential rate interest hike, we’re trying to avoid getting into the system and then having that rate hit us, which cost more dollars,” Murray said.
Instead, knowing interest rate growth might be on the horizon, he said his firm has worked with an underwriter during the past couple of weeks to solicit on the city’s behalf. The solicitation included questions on best available interest rates and call provisions. Webster Bank came in the lowest on both accounts.
According to information Murray provided to the Council, if interest rates moved up by 25 basic points by the time the city could secure a sale going through the bidding process, it would save money by locking in on a bank placement. Some public reporting suggests the Federal Reserve could bump interest rates up as much as 50 basic points.
“If we wait — based on our analysis from, again, we were looking at it about a week and a half, two weeks ago,” Murray said. “Because of the timing of it, we have to get documents prepared. The point in time that we looked at it, if we risk it and go through the competitive sale — we change routes and go that way — the potential is about another $120,000 in increased interest borrowing over the life of this debt.”
He recommended to the Council that it instruct city staff to do a bank placement for its 2022 permanent improvement revolving loan fund, which would fund the 2021 petition projects.
The Council unanimously approved a resolution to do a bank placement on the general obligation bonds.
“We’re trying to lock in before any of the anticipated interest rate hikes with the fed later this week,” Murray said.