Proceeds from a $3 million general obligation bond issue approved Oct. 14 by the Monticello City Council will fund wastewater treatment facility improvements.
According to Finance Director Wayne Oberg, last September, city leaders adopted a resolution declaring the city’s intent to reimburse itself from bond proceeds for expenditures related to improvements to the treatment system. Since last fall, the council has awarded various projects related wastewater treatment system improvements totaling $2.7 million. Oberg stated in a background memo to council, adding other items in the Sept. 24, 2012, reimbursement resolution have yet to be addressed but are not expected to exceed the $3 million bond issue, which includes about $70,000 in issuance costs and underwriter fees.
According to Oberg, total 2013 debt issued by the city will be less than $5 million. Including the proposed sale, debt will total 3.5 million and include April 2013 capital equipment certificates totaling $500,000. Proceeds exceeding the costs of the wastewater treatment facility improvements will be used for debt service.
Additionally, since the total debt issued for 2013 would be less than $10 million, Oberg stated the wastewater treatment bonds will be bank qualified. Banks are allowed to purchase up to $10 million in bonds from a single issuer in a given year. Banks also get a tax break on the interest from municipal bonds. The tax exemption allows banks to bid more for the bonds, resulting in lower net interest costs. Interest rates increased rather dramatically recently because of concern over the Federal Reserve’s plan to taper its bond buying program, Oberg explained. Anxiety, caused by the taper, has subsided somewhat lately and interest rates have settled over the last several weeks. The impact of the recently concluded government shutdown is indeterminable. However, if treasuries become a less desirable investment, this could be positive for municipal bonds. The city anticipates the final settlement related to its FiberNet telecommunications debt will occur in the second quarter of 2014, Oberg said. However, this isn’t assured. The city can issue the settlement bonds next year and still have room under the bank qualified amount for issuance of debt related to other projects such as the Fallon Avenue overpass. According to Oberg, Monticello’s 2013 bond sale provides for more flexibility in financing the needs of other projects and mitigates the impact of the Federal Reserve stopping or tapering its bond buying effort.
This recently approved bond issue is structured so rates are not required to be set at a level to cover debt service payments, Oberg explained in his memo.
This allows the city to use mix financing sources to meet debt service needs. Current rates do cover the debt service costs related to this issue, but future rate adjustments may be needed to meet operating requirements. Monticello’s legal debt margin as of Dec. 31, 2012 stood at approximately $32.8 million.
Contact Tim Hennagir at [email protected]