Councilors approve plan to refinance debts, save city money
November 18, 2020
Sweet Home City Council is looking to refinance some of its debts to take advantage of unusually low interest rates.
Councilors Lisa Gourley, Greg Mahler, Diane Gerson, Dave Trask, Susan Coleman, and Cortney Nash attended the council's Nov. 10 city meeting, with councilor James Goble absent.
Finance Director Brandon Neish told the council the city is currently paying interest rates between 2.4 and 3.14% on $6.5 million in existing debts, far above current market rates for interest.
"We can potentially get those rates below 2% for all of those," Neish said.
Those loans date back to projects related to wastewater and water treatment systems, and are supposed to be paid off by 2035. If the city goes through with refinancing, Neish said, it could save over $700,000 in interest payments over the rest of the loan's life. The refinancing would be through a full faith and credit bond, which is a "large undertaking," Neish said, as it means the city is leveraging all the unrestricted resources of the government. In this case, the general fund would cover the costs if the water and sewer funds couldn't pay the bill.
Mahler called 1.7% "a pretty good rate," and Trask asked whether the city would be guaranteed to get it. Neish responded that it's likely the city will land close to that number, though it depends on timing.
He added that "the state of Oregon may have better options," and an analysis of those options will come out sometime this month. He noted that passing the resolution didn't commit the city to one path or the other, but instead gave them the opportunity to look at both options.
"We won't lock in the rate until we go out to sale," Neish said. "If it drops to 1.4%, we go to 1.4%."
"And if it goes up to 3.0%?" Gerson asked.
"Then we would certainly stop the sale," Neish said.
There is a cost for brokering the deal, which is about $35,000, he said.
Gourley asked what would happen with the saved money from the lower interest. Neish responded that there are a few options -- the city could use the savings to invest in infrastructure or save it for a reserve, or the money could go back to the water and wastewater rate payers. But because the loans are tied to water and wastewater, the money can't go to the city's general fund -- it has to stay in those departments.
Asked whether the savings could reduce the duration of the loans, Neish said he guessed it could "shave a year or two," but said he hadn't yet run those numbers.
The council then voted unanimously to pass the resolution.
In other action:
- The city will soon pass ownership of the fire district buildings to the Sweet Home Fire and Ambulance District. The properties at Foster and in Sweet Home are both currently owned by the city and leased to the district for $100 a year, which Fire Chief Dave Barringer said can cause difficulties when trying to build new structures or do maintenance.
"The taxpayers in the city own the building either way," Barringer said. "They own the fire district just like they own the city."
City Manager Ray Towry told the council "there's no real benefit to us owning the property, it might be a liability if anything."
The council gave the go-ahead for the resolution to be drafted for a future vote, with an amendment from Gourley that the city can retake ownership if the building isn't in "active use," so as to avoid it becoming little more than a storage facility.
Barringer responded that the district will likely expand in its current location because of growth in call volume and the department's size, and that it plans to stay in its current buildings "forever, probably," because they are so centralized.
The change will "simplify" things for the future fire chief after Barringer retires, he said.
- Council also unanimously voted to execute a contract with Keller Associates for a value engineering study on the plans for the new Wastewater Treatment Plant. The contract will cost $77,630, slightly below the $80,000 estimate staff previously gave. This type of value engineering study is a mandatory part of some of the grant and loan applications the city has applied for, and City Engineer Technician Trish Rice has previously said such a study can save the city money in the long run as inefficiencies in the existing design are often discovered.
Sweet Home staff wrote that they anticipate asking engineers West Yost to review the study recommendations and incorporate them into the design, at the hourly rate of $227 per hour for the staff.
- Police Chief Jeff Lynn introduced a new officer to the council, Ian Mason of Salem. He spent four years in the Marine Corps before coming to SHPD, and will begin training at the academy in a month or so, he said.
"I look forward to serving you guys' community," he said.
Mahler suggested he keep an eye out for Trask's vehicle and target it for plenty of tickets, which drew a laugh.