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Chatfield looking into 2008 bond refinancing

Mon, Mar 5th, 2012
Posted in Chatfield All

Mike Bubany, David Drown Associates, Inc., at the council’s February 27 meeting discussed the potential savings the city could realize by refinancing the 2008 bond which was originally sold to finance the new water tower, a booster station, and the construction of Hillside Drive. Councilor Ken Jacobson was absent.

Because the bonds are not callable until February of 2013, there would be a one percent prepayment penalty. In order to refinance the new bonds before the call date, the new bonds would need to be issued as an advanced refunding, which will require an escrow account until the call date is reached. Bubany admitted the advanced refunding is inefficient. Until 2016 any prepayment comes with a penalty.

If the city waited to refinance, it could cost around $55,000 less. However, interest rates are very low now and more than likely will be higher at this future date. Bubany estimated the city could save as much as $279,000 after the additional costs at the present low interest rates.

Bubany asked, “Do we sit around and wait and see if rates hold true or do we lock it in now?”

Councilor Paul Novotny said “it seems to make some sort of sense” to pay some fees now rather than risk rates being up if we wait until 2013 or 2016. City Clerk Joel Young said if we do nothing the savings would be zero. Do we save $280,000 now or maybe more or less in the future?

The state requires at least a three percent savings to do the refinancing, where this could be a 14 to 16 percent savings. Mayor Don Hainlen said it seems like good business to realize those savings.

Bubany noted it would cost about $8,000 for the rating agency fee. The council voted to put a floor on the savings at $250,000 and allow the mayor to sign a deal at that level or above if it is negotiated. The bond issue would be for $2,020,000.

Water and Sewer Rates

Bubany discussed his recommendations for rate adjustments for water and sewer. Minnesota Statute requires conservation rates for water utilities in cities with populations over 1,000 by January 1, 2013. Bubany suggested the easiest way to comply with the new law is to adopt increasing block rates, meaning “the cost per unit sold increases as water usage increases within specified blocks.” The DNR doesn’t allow any gallons to be in the monthly base rate which is the current practice in Chatfield.

Commercial and institutional properties will be billed under a different rate structure. The rate structures proposed by Bubany would result in a three percent increase in revenue for the city’s Water Fund over a twelve month period.

Bubany proposed an increase in all sewer rates of 15 percent for 2012. His proposed structure would likely have a five percent increase each year after the initial larger increase. Young noted the growth that was expected hasn’t been realized due to the weak economy over the past several years. The Wastewater Treatment Plant funding was refinanced to smooth out the payments over time with one large bump.

The council took no action on the water and sewer rates. Mayor Hainlen suggested it is best to let the public have a chance to look at the proposed changes. Novotny noted the city’s hands are tied on the water rates because of the new state law.

Other Business In Brief

•Young explained it was suggested last year that the council could operate more efficiently by going paperless. The first step of installing wireless technology in the Thurber Building has been taken. A refurbished Ipad was purchased to test the system over a month ago. It was recommended to purchase a current model of the Ipad for the mayor, each councilor, and the city attorney. The expected cost about $800 each. Young expects about four years usage for each unit. A motion to purchase the Ipads was approved with Councilor Russ Smith voting against.

A technology policy was approved to make certain expectations for use clear.

•The purchase of a 2002 replacement street sweeper was approved from MacQueen Equipment for $57,296.88 after trade in of the current 1994 model street sweeper.

•A first reading of Ordinance #403 was approved which will vacate one foot of property along Spring Street, Lot 5, Block 8, Twiford and Company Addition. The one-foot vacation was necessary because of a 10-inch encroachment of part of the house into the right of way of Spring Street. This was discovered during the process of selling the home. The vacation will help in getting clear title of the property.

•The Household Hazardous Waste Collection will be held on September 18, 2012.

•The council approved the 2012 Fillmore County Ambulance Subsidy Contract.

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