Interest rates have declined since Glenville bonded for a variety of projects 10 years ago, and town officials are hoping to capitalize on that fact.
The Glenville Town Board approved the refinancing of public improvement serial bonds from 2002 at a meeting on Wednesday, March 21, a move that is estimated to save the town around $25,000 annually, or $375,000 during the remaining 15 years of debt service. Town Comptroller George Phillips said the town has paid an average 5 percent interest rate, but financial advisors estimate refinancing could yield an average 2.97 percent interest rate.
“I have always asked our comptroller to be aware of the market and obviously the bond rates are much lower now than 10 years ago,” said Supervisor Christopher Koetzle.
After all costs to refinance bonds, Phillips said the town would realize around $300,000 in savings, or a 9.5 percent return.
“It seems like a no brainer,” Phillips said. “It is hard to get that kind of return elsewhere.”
The town is betting interest rates won’t drop significantly lower. The actual refinancing would happen in May or June.
“Interest rates are very volatile … so who knows what we will end up with,” Phillips said. “We are cautiously optimistic; we wouldn’t be doing it if we weren’t confident it was going to be saving us money.”
Phillips said when the town first looked at refinancing the bonds the net savings were falling around $400,000 to $500,000. Around a month later, interest rates increased to reflect the current savings. It was previously a 13 percent return, up from the estimated 9.5 percent return.
“If we don’t do anything … and interest rates went up we would lose the opportunity for the savings,” Phillips said. “We are not at the business of making money off interest rate fluctuation.”
He is also “cautiously optimistic” the town’s Moody’s A1 bond rating will remain steady. The rating is considered to be the top tier of an upper-medium grade rating, holding low credit risk.
Early budget forecast
Koetzle said the town is working on nailing down tentative 2013 budget numbers, looking far off towards a November adoption.
The fund balance at the end of last year had $3 million in cash, Koetzle said, with appropriated funds for this year’s budget using $815,000. Debt service payments accounted for another $53,000 from the reserve. Also, state retirement requires prepayment during the first quarter, using another $227,000 that is later replenished.
After all obligations the town had $1.9 million in its fund balance at the end of last year. This year’s fund balance is estimated at $2.2 million, but after trended obligations would result in $1.1 million cash, according to Koetzle.
“If we continue the trend of backing off hopefully it is going to be less, but we’ve got an $815,000 hole that we are going to have to fill in one way or another,” Koetzle said. “We’ve got some challenges coming ahead of us.”
The board reduced fund balance usage in the 2011 budget by $200,000, or 15 percent, and the adopted 2012 budget reduced usage by $351,000, or 32 percent. Koetzle said replenishing the fund balance has only become more difficult, too. Weaning off of a “reliance” on the fund balance, Koetzle said, is important to maintaining fund reserves.
“We are going to continue to try to lower that to under our goal of half-a-million dollars over the next two years,” he said. “I think that will help keep our bond rating strong as well.”
Koetzle said he plans to start below the state mandated tax cap in his initial budget proposal.
“I believe we will always approach it as a general rule to stay under the tax cap,” he said.