It may not be glamorous but saving over half a million dollars over 7 years and receiving a premium of over $4 million dollars shows everyone again that the city is in solid financial standing.
Buried in this week’s City Council Packet is the news that the City Finance Team had a very successful Municipal Bond Sale and Refunding!
In the packet is a Letter from Conor Baldwin, Chief Financial Officer that in part reads:
I am pleased to report that our office received competitive bids from bond underwriters on Thursday, August 13, 2015 for a $39.9 million, 20-year State Qualified new money & refunding bond issue. Mesirow Financial, Inc. was the winning bidder of the Bonds with an average interest rate of 2.75%. The City received a total of 6 bids on the Bonds.
Bond proceeds will be used to refund a portion of the City’s October 15, 2003 bonds, as well as provide permanent financing for critical infrastructure investments in Lowell.
In terms of the refunding, the results will produce $529,979 in total savings over the remaining 7 years of the bonds being refunded. The refinancing will generate a net budgetary savings of $173,376 to the General Fund. This figure takes into consideration the savings that the City is required to share with the MSBA as the school projects included in the refunding are still receiving approximately 81% reimbursement from the MSBA.
Because of the large size of the bond and the good credit rating of the City, a premium of over $4 million was received as part of the sale.
In accordance with Mass General Laws Chapter 44 § 20, the premium and proceeds shall be used to cover the cost of preparing, issuing, and marketing the bonds. A balance will likely remain after covering all issuance costs, which I would recommend be appropriated by the City Council into the Debt Service Stabilization Fund when it is eventually certified as free cash by the DOR as of July 1, 2016.
It should not be used to reduce the tax levy, as it is one-time revenue and doing so would create a structural deficit.
If appropriated to stabilization, the funds can provide direct cash to jump-start future capital projects and reduce the impact on the levy in the medium term.