Debt restructuring dominates meeting
Restructuring of bond debts dominated the Troy City Council work session on Tuesday, as talk turned to opportunities to generate much-needed cash for capital projects while taking advantage of favorable interest rates.
Bob Young, a representative of investment banking firm The Frazer Lanier company, met with the mayor and council members prior to the regular council meeting to discuss options for refunding, or restructuring the city’s two existing bond issues.
The first proposal addressed the utility bonds issued in 2002 and, at a restructuring cost of $8.735 million could generate an immediate cash outlay of $479,380, Young said.
The second proposal addressed the 2003 GOZone bonds and, at a restructuring cost of $8.505 million, would generate cash of $130,931 and a long-term savings of $150,794.
“I think there’s no question you should refund the 2002 bonds,” Young said.
By restructuring those bonds, which are repaid with the revenues generated from utilities, the city generates the much-needed $3 million in matching funds to complete the $6 million sewer and water improvement project slated for fiscal year 2011. The city already has secured a $2 million federal grant and a $1 million in ADECA funding for the project. “If we need to generate $3 million in new money, refunding these bonds (and adding this capital cost to the bonds) is the way to go,” Mayor Jimmy Lunsford said.
“With the way rates are right now, you may be able to add the $3 million into the bond issue and not increase your debt service,” Young told the council members.
Council members also asked Young to prepare schedules showing the refunding of the 2003 bonds to include the addition of $4 million for capital outlays for city projects. “If we’re going to look at new money for capital outlays, would there be advantage for us to look at restructure these and keep us close to this payment so we’d have money for capital projects, like a library?” Lunsford asked Young.
Dr. Linda Felton Smith, superintendent of the Troy City Schools, also brought the issue of debt restructuring to the council members, seeking their help in restructuring the school system’s $7.5 million in debt to generate cash for capital improvement projects.
“We are experiencing a 40-year precedent with interest rates right now,” she said. “We’ve been discussing how we can take advantage of this opportunity that might not come around again for a long, long time.”
Smith said the school board also has been working with a representative of Frazier Lanier to explore restructuring opportunities, and proposals generated have suggested the schools could restructure and generate anywhere from $4.5 million to $14 million in cash for capital improvements. Smith sought the city’s help in issuing the bonds, which is the approach taken when Troy Elementary School was built.
However, the mayor cautioned against that approach.
“At this time I have reservations because we don’t even know where we’re going to be with the hospital,” he said. “We have $11.5 million in debt and either the trust fund will be broke or a loan will be taken out.”
Another option available is the creation of a Public Education Building Authority, which must be created by the city council for the sole purpose of issuing bonds on behalf of public education for the city, Young said. “It’s common in many cities in Alabama.”
Jason Reeves, District 3 Councilman, said after the meeting he expected council members to assist the school system, at a minimum by creating the authority, and he wanted to find out more information about how the city’s support would impact ultimate cost of the bond issue. “I’m excited, though, to see the school system getting ready to grow and looking at getting ready to grow. I think it’s wise for us to take advantage of this mark and I’m anxious to look at what opportunities we have to see what they’re trying to do impacts the city.
“Overall, the capital growth in the schools is a positive sign for the future.”
In other business, the city council:
• Awards bids for a utility truck and painting of the water tank on George Wallace Drive.
• Awarded a bid for drainage improvements on Sherwood Avenue and in Country Club Estates on Spradley Drive and Wilson Drive. Total cost for the project is $119,393, and the city has received grant funds of $102,000 to help offset the cost.
• Approved the transfer of the cable charter from Charter Communications to CoBridge LLC, which takes ownership of Charter effective Oct. 1.
• Approved the appointment of Judy Bazzell to fill the vacancy left by Dale Calhoun, who resigned from the Charles Henderson Child Medical Clinic Board.
• Approved payment of $749,286 from the gas tax funds and capital improvement funds to complete the resurfacing work. “Things were on the fast track trying to accomplish most of this with the least disruption to our citizens,” said Johnny Witherington.
• Declared a building at 106 MLK Drive dilapidated, which gives city officials approval to have it removed.
• Heard from the mayor, who is recuperating from hip surgery and continuing to work on the budget. “I will have a revised copy of the budget in your hands by next week,” he told council members. “It will, based on what I have been able to determine, require the transfer of some funds from surplus. But I’m very pleased to report the surplus is there.”