Carmel City Council approves refinancing bonds
By Adam Aasen
Prior to its April 21 meeting, there was little doubt that the City Council would vote to approve refinancing $152 million in debt.
By refinancing bonds and taking advantage of current interest rates, the city could save nearly $5 million in debt payments.
But the real question has come down to what to do with the extra cash?
And should the city frontload the savings or spread it out over the life of the bonds?
If the city council took the money up front, the city would save less – about a hundred thousand dollars. But the initial influx of cash could be used immediately, possibly on new projects.
While the first question hasn’t been decided yet, the city council came to some decisions on the second one. The council approved refinancing two separate bonds – one with upfront savings and one spread out over time.
IN regard to the County Option Income Tax bond, the council voted to spread out the savings because it was viewed as the financially conservative thing to do. But the other bond, which is debt from the construction of the Carmel Center for the Performing Arts, will be refinanced to frontload the savings, because the councilor are concerned that there might not be enough tax incremental financing funds available to make debt payments.
“We have ample COIT. We don’t really need it, but in this other case, we do need it,” said Councilor Luci Snyder. “These are the years in 2014 and 2015 where we are going to be tightest in TIF increments.”
The COIT bonds will be refinanced to allow for $190,000 in savings per year over the life of the bond. It should be paid off in 2027. Tax revenue that would have been spent on this debt would remain in the general fund.
The performing arts center bonds will be refinanced to allow for $1.3 million in savings over the next three years and then $75,000 in savings per year until the bonds are paid off in 2033. These savings will be directly deposited into a special reserve fund overseen by the CRC board.
In both cases, the council voted 4-3 on the COIT bond, with Sue Finkham, Ron Carter and Kevin “Woody” Rider voting against spreading out the savings. Councilor Rick Sharp proposed spreading out the savings for the performing arts bond, but Snyder essentially become the “swing vote” when she decided to go a different route with this bond. Others followed suit and it passed 6-1.
The debate showed the difference in philosophies about saving versus spending.
“I’m always a believer in a bird in a hand,” Rider said. “I’m a believer in getting as much of it now as you can, especially when the savings isn’t that different.”
Sharp interjected, “There is no bird. We have the bird. The question is whether we eat the bird in two or three big gulps or save some for a rainy day.”
Rider shot back that just because the cit would take the savings now doesn’t mean it would have to spend it.
Snyder pointed out that even if money sits in a rainy day fund without being spent, it isn’t a waste because that is considered “available cash” when the city receives its credit rating, which means lower interest rates for the city on loans and possible additional savings.
It’s important to note that this refinance doesn’t mean additional revenue for the city, just smaller bills to pay. If revenue falls short of expectations – as Snyder fears with TIF funds – then it will be easier to make debt payments.
Snyder said this is especially important because of the looming concern of a special benefits tax on all real property in the city, which would be needed if there wasn’t enough TIF revenue to pay for the $175 million Center for the Performing Arts. That’s something nobody on the council wants to do, she said.
Initially, councilors had many questions about whether the refinance would add to the debt or push back the final payoff dates, but officials said that wouldn’t happen.
“It’s not kicking the can down the road because we are just saving money, not extending the terms,” said city bond consultant Loren Matthes of Umbaugh and Associates.
And even if some disagree with when to take the savings, Sharp said the refinance is a no-brainer.
“We’d be fools if we failed to realize these savings,” he said.