Pittsfield Looking to Refinance $4.2M in Long-term Debt
The City Council was somewhat split on whether the item had to go to subcommittee. Councilors Christopher Connell and Anthony Simonelli thought so while Lisa Tully and Nicholas Caccamo were among the group voting that it didn't.
Director of Finance Matthew Kerwood received City Council approval to start the process of issuing refunding bonds for the debt. The will city will basically be paying off those callable bonds from 2008 with money borrowed at a lower interest rate.
The bonds will still mature in 2028 but, because of the new interest rates, Kerwood estimates some $425,000 could be saved over the next decade.
Kerwood said those bonds — taken out for a number of capital projects — have only recently became callable (able to be redeemed prior to maturity) and, because of the economic conditions in 2008, are particularly ripe for the process.
"We can take advantage of refinancing the bonds at better rates," Kerwood said, later adding, "the idea is to save the city the $425,000 over the next 10 years."
Kerwood said the reissuance of the bonds would go through a competitive sale on June 1. Prior that date, there are a number of processes needed to be done. Those include having the consultants and bond council look deeper into the numbers and debt authorizations, go through a legal review, apply for the process through the state, and go through a round of interviews and discussions with Standard and Poor's about the city's bond rating.
"There is a lot that goes into preparing for these type of debt financing bonding," Kerwood said, adding that he went through the process at his last job in Richmond with school debt and that ultimately saved a half-million dollars.
The consultants and attorneys, of course, will be charging the city for their efforts so Kerwood needs council approval first. But that approval came a little harder than expected. Some members of the City Council felt that it needed to go to the Finance Subcommittee for review. The council has a rule that items over a certain dollar amount goes to the subcommittee unless that rule is waived.
"I don't want to keep bypassing the subcommittees," Councilor at Large Kathleen Amuso said.
Many councilors said they'd like to honor the subcommittee system and that this is already the second time under Mayor Linda Tyer's administration Rule 27 — for finances — has been waived. Earlier this year, the council waived the rule in order to submit a grant to the U.S. Economic Development Agency on time. But, that was excusable because it was something the administration inherited and caught the mayor off guard
Ward 7 Councilor Anthony Simonelli said the rule is in place for a reason and should be honored. Ward 6 Councilor John Krol, however, said the rule shouldn't be invoked in this case. The authorization is merely to start the process and Kerwood would have to return with specific numbers for approval to reissue the bonds.
"You would still have to approve the authorization to actually go out and bond," Kerwood said.
Kerwood added that he would be able to have some exact numbers and estimates for a subcommittee meeting in mid-May. The full City Council will then need to approve the new bonding on May 25.
"I don't necessarily see where the outcome would be different [if sent to subcommittee now]. Essentially what you'd be doing is putting the schedule back," Kerwood said. "The clock kind of starts with your approval this evening. That gets us to that June 1st date."
Kerwood said he wants the sale of the new bonds to be done by the first to avoid conflicting with the budget deliberations in June.
For Ward 4 Councilor Christopher Connell, the process doesn't seem to add up. Connell said since 2008, the city has mostly paid interest payments on those bonds and not much on principal. But, the value of the work — such as a roof or a plow purchase — has decreased. He doesn't see how reissuing the debt would save money because ultimately the city will again be paying more interest up front and less principal.
"It would seem like we didn't pay much for the principal value of these goods," Connell said. "It just seems like we are almost cutting the term in half and still saving money, you'd have to have a wide swing in interest rates."
It is those type of questions Councilor at Large Melissa Mazzeo would like to have answered and explained in much more detail at a subcommittee level. She wants to know the individual capital projects, the costs, and the long-term impacts of the new bonds. She urged the council to send it to subcommittee.
A motion to send it to the subcommittee failed in a 5-6 vote with Mazzeo, Simonelli, Morandi, and Amuso in favor and the rest opposed.
"We're getting the ball rolling on this," Ward 3 Councilor Nicholas Caccamo said. "I think the intent is right, it is a good step forward."
The city is in a precarious financial situation since the levy ceiling is now lower than the levy limit, which means the city's ability to tax is running short. Tyer said savings coming from such a refinancing plan is what is needed to help "stabilize" the finances.
"We are working every day in trying to stabilize our financial condition," she said.
Tags: bonding, debt service, Finance Committee, municipal finances,
