Washington Finance Director Mary Sprung said the city is unlikely to get the savings it originally expected by refinancing bond debt.
In late November the Washington City Council voted to refinance certificates of participation (COPS) to save an estimated $900,000. At the Jan. 22 administration/operations committee meeting, Sprung said that estimated savings has taken a hit.
Sprung said the bond market was “flooded” at the time the city chose to refinance. Like Washington, many other entities were looking for savings at the same time in a favorable market.
With the market flooded, Sprung said the projected savings is about $300,000 less than estimated. The city would still see savings, but only about $592,000 worth.
Sprung told The Missourian the best bet right now is to wait. She said she was hoping in the next few days, the market would recover somewhat.
Piper Jaffray and Co. has been contracted to work with the city on the bond sale. Sprung said she was hoping for a report soon on more favorable conditions so the city could finally sell the bonds.
“Any day now we’re hoping to get a call from Piper Jaffray,” she said.
Last month around the same time, the market bounced back a bit, Sprung said. She said if the market recovers even slightly, the city could get its savings bumped up a bit. A small change in the market could lead to a $250,000 increase in savings, she said.
“That’s how volatile the market is,” she said.
The city had planned on selling the bonds late last year. After the initial drop in savings was reported, the city decided to let the bonds ride and see if the market would recover.
Sprung told the council the market did have a slight rebound, but not up to the original estimates. Last week she said the bonds would be left out on the market for a little while longer to see if the market picks up any.
At some point in the near future, however, she said a decision would have to be made. Sprung said the bond market looks like it could become problematic again in March with rate changes. The rate changes by the federal government would impact the potential savings.
Sprung did not anticipate the city holding on to the bonds. She said the savings, while maybe lower than predicted, are still a good deal for the city.
The city has an outstanding principal of $27,245,000 on the bonds. The money was mostly tied into the Highway 100 expansion and the construction of the new library.
The final payment for the bonds is due in 2030. The city began looking into refinancing to take advantage of a favorable market and save some money.
The original plan was to refinance in 2018 after the April municipal election. If voters approve the extension of the half-cent capital improvement sales tax for another eight years, the city had considered securing bonds to pay for some of the potential projects.
When the tax was last approved in 2010, the bond market and construction market were both favorable so the city took advantage and used bond funds to start construction sooner.
If the tax is passed in April, City Administrator Darren Lamb said it is unlikely the city would use bond funds again. Lamb said it doesn’t appear there are any major projects that would need bond financing. Michelle Bock with Piper Jaffray and Co. told the council in November the time was right to refinance. She said there’s a lot of “market volatility” right now as the U.S. Congress debates and discusses tax reform.