ITALY - The Italy City Council tabled action regarding the $5 million certificates of obligation for the sewer treatment plant at its meeting Monday evening. Instead, the council scheduled a workshop and called a meeting for 10 a.m. Saturday, July 14.
During discussion on the issue, Mark Singleton, president of Citizens National Bank, and Nick Bulaich with First Southwest Securities presented loan options for the city.
Citizens National Bank financed the bond in 2005 with a variable interest rate, currently at 4.5 percent through June 2008. Singleton said rates are expected to increase to 5.25 percent after that date. Interest rates, after that time, could possibly increase to 7 percent or higher before the end of the note.
Singleton said he was concerned because the city had not made a principal payment and chastised the previous council for not following through with ways to pay back the bond. The projected increase was to come through a tax increase and higher sewer/water rates.
He said he worked with the city about a year-and-a-half ago with half of the proposed increases coming from the tax base and half from the water/sewer bills.
“The dilemma, at this time, was what had to happen was for the city to go to an 85 cent tax rate and raise the water/sewer bill from $13 to $22 or $23. The city did approve an ordinance to raise the tax rate up six cents at that time. This was about a third of what the city needed to raise,” Singleton said. “This has put the city in a precarious position by being about $300,000 short from a debt service perspective.
“Every month or every year you don’t make a payment on the principal basically burdens you and the taxpayers,” Singleton said, telling the council it needed to take care of the interest and start to retire the debt.
Singleton said First Southwest Securities has offered to lock in a fixed rate for 25 years, which includes a $493,000 cost to lock-in that fixed rate.
“At what point does it make sense to refinance?” he asked the council, suggesting the city not rush into anything.
Bulaich said he had worked earlier with the city during the sales tax election.
He said the city staff was looking at a principal and interest payment of $170,000 in December 2007 and indicated the city staff questioned what options there might be.
Bulaich said his company came up with a proposal with three objectives, with the first being to change payment dates to February and August with half the funds coming from the water and sewer revenue and half from taxes. He indicated the payments needed to match cash inflows.
The second was to buy time for the city. He said when the city embarked on the bond there was to be a rate increase on the sewer side.
“For one reason or another, those increases were not put in place,” He said. “We are, in essence, giving the city three years to right the ship to get rate increases in place so the city could afford payments for the $5 million bond.”
The third goal was to lock in a fixed interest rate.
Bulaish indicated the council could authorize certain terms such as interest rates and length of note. With authorization from the mayor, the city could sell bonds at that time.
Bulaish said the proposed note would be $5,230,000 with $3,965,000 in interest payments for a total of $9.2 million spent over 25 years.
Singleton said he could not give a total for the overall life of the note since the interest rates varied. He urged council members, again, to be studious in their decision.
“The actions of this council could bind the city for the next 25 years,” he said.
In other business, bids were accepted for a 1999 garbage truck, a 1981 Ford tractor and a 1989 dump truck. The council approved the sale of the garbage truck to Frontera for $15,000 and the tractor to Frontera for $3,500. Mark Souder Jr., public works director, recommended the city keep the dump truck and make repairs and purchase a a new tractor with the money received from the equipment sale.
City secretary Cynthia Olguin was authorized to seek proposals for a new auditing firm for the city, which has been with the same firm for several years.
A master intergovernmental cooperative purchasing agreement with U.S. Communities (Government Purchasing Alliance) for the purchase of office supplies and goods at a government rate was approved.
Diego Garcia was appointed to fill a vacant seat on the Italy Economic Development Corporation.
The city has tentatively rescheduled its cleanup day for July 21, with Olguin saying the landfill in Avalon was too wet for trucks in early July.
She also indicated that the new city Web site should be up within a couple of weeks.
Resident Tom Little addressed the council and complained about the fireworks July 4. He asked when the city was going to stop the fireworks, saying an ordinance is in place and asking why fireworks were allowed to continue into the early morning hours.
In response to his questions, the police chief indicated no arrests were made but several warnings were issued, saying the department was shorthanded and doing the best it could do.