Competitive bond sales save city money
By Scott Bellile
New London’s city council voted to award two bond sales totaling $8.6 million to finance capital projects and improving the city’s utility system.
At a special council meeting May 4, Financial Specialist Maureen Schiel of Ehlers informed the council that eight bids came in during two “competitive” sales held that morning, saving the city tens of thousands of dollars.
Back in April and prior to the bond sales, it was projected the tax impact of the borrowing would increase property taxes from $1.26 per $1,000 to $1.47 in 2017. From there taxes would increase approximately 7 to 13 cents per year until peaking at $2.58 per $1,000 in 2028 before stabilizing and dropping.
Five financial institutions bid on the city’s $5.6 million general obligation corporate purpose bonds. These bonds will cover capital projects.
The sale was awarded to Piper Jaffray in Minneapolis, which offered the city the lowest interest rate, just under 2.4 percent. (In comparison, the highest bidder, Raymond James and Associates of Tennessee, offered a 2.6 percent interest rate that would have cost the city an additional $138,000 in interest.)
“Due to the expenses coming in lower than estimated, as well as the underwriter’s discount and a premium bid, there were additional funds of about $70,000 that will be able to be used for additional capital projects,” Schiel said, “as well as about $230,000 that will be able to be deposited into the debt service fund for this issue and applied to interest, expenses in the next three years.”
The general obligation bonds will finance the construction of the new city garage, improvements on Division Street and a $345,000 fire truck, which New London purchased in 2015 out of a reserve fund with the understanding the bond sale would repay that fund.
Moody’s Investors Service assigned an A1 rating to New London’s $5.6 million general obligation corporate purpose bonds. Moody’s cited “conservative budgeting practices characterized by well-managed financial operations and growing operating reserves” as a credit strength. It cited “modest tax base compared to similarly rated credits” and “slow principal amortization” as credit challenges.
Three financial institutions bid on the $3 million sewerage, water and electric system mortgage revenue bonds. Winning bidder Bankers Bank in Madison, which is affiliated with First State Bank in New London, offered a 2.6 percent interest rate. (In comparison, highest bidder BOSC in Dallas offered a 2.7 percent interest rate, for a difference of about $8,400.)
The mortgage revenue bonds will fund a list of projects throughout the next couple years. Major projects will include:
• Building a new substation located south of the New London Jaycees Dog Park off of U.S. Highway 54 ($1.3 million). New London Utilities General Manager Steve Thompson said the current station there is old and in need of upgrades.
• Installing 35-kilovolt three-phase electric power underground along the U.S. Highway 45 bypass and County Road S ($600,000). The addition will reinforce the power supply going into the southern part of city, where a number of industries and the high school are located.
• Help bring utilities to an addition being built on Steel King ($400,000).
• Replacing a water main segment on Werner-Allen Road ($200,000).
• Installing an iron removal system in a well near Werner-Allen at Beacon Street ($180,000).
• Installing a pitless adapter well to replace another well near Werner-Allen at Beacon ($180,000).
Moody’s Investors Service assigned an A3 rating to the utility’s $3.2 million revenue bonds. Moody’s cited a relatively stable customer base and improved financial operations as credit strengths. It stated the city’s credit challenges include a “concentrated customer base” and “rate increases require approval of Public Service Commission.”