Coun­cil ap­proves $10 mil­lion cap­i­tal project bond

North Penn Life - - News - By Dan Sokil dsokil@jour­nalregis­

Un­cer­tainty in Washington, D.C., and talk of a fis­cal cliff have cre­ated an un­ex­pected bonus for Lans­dale Bor­ough tax­pay­ers.

Bond bor­row­ing rates have con­tin­ued to de­cline this month and the sav­ings have been hefty for the bor­ough on a new $10 mil­lion cap­i­tal project bond it ap­proved Nov. 28.

“Be­tween the 7th and to­day, in­ter­est rates have de­clined so much that the to­tal debt ser­vice has gone down by $975,000 be­tween the last time we pre­sented and to­day,” said con­sul­tant Ed Mur­ray of Con­shohocken-based Boen­ning & Scat­ter­good.

“We have now hit the his­toric 47-year low. There has never been a time in the last 4S years that you could’ve got­ten a mort­gage or bor­rowed” at rates lower than to­day, he said.

Bor­ough coun­cil ap­proved a $9.4 mil­lion bond is­sue in 2010 to fund long-term cap­i­tal projects such as build­ing and road re­pairs and other in­fra­struc­ture up­grades, and set the bor­ough’s debt ser­vice level at $1.S mil­lion an­nu­ally for the du­ra­tion of that bond.

Ac­cord­ing to Bor­ough Man­ager Timi Kirch­ner, the bor­ough cur­rently has $24.4 mil­lion in var­i­ous cap­i­tal re­serve ac­counts, of which $11.5 mil­lion in projects has al­ready been spent or al­lo­cated. Sub­tract­ing a $2 mil­lion re­serve leaves a $10.9 mil­lion cap­i­tal re­serve bal­ance and an un­funded to­tal of a lit­tle more than $20 mil­lion in fu­ture projects iden­ti­fied as es­sen­tial needs.

Ear­lier this month, coun­cil’s ad­min­is­tra­tion and fi­nance com­mit­tee re­viewed op­tions for an­other $10 mil­lion bor­row­ing in or­der to fund more work on the bor­ough’s $42 mil­lion long-term cap­i­tal project list. Of that $42 mil­lion, $11.5 mil­lion has al­ready been al­lo­cated, and the $10.9 mil­lion al­ready in re­serves would be sup­ple­mented with the $10 mil­lion 2012 bond and pos­si­ble fu­ture bor­row­ings to fin­ish that $20 mil­lion un­funded on the $42 mil­lion list.

Mur­ray pre­sented op­tions for a $10 mil­lion bond bor­row­ing in 2012 to coun­cil at its Nov. 7 meet­ing, and at that time dis­cussed how the debt pay­ments on the 2012 bond could wrap around the 2010 debt to cre­ate no bud­get im­pact in 2013.

His good news for coun­cil Nov. 28 was that global eco­nomic con­di­tions have helped the bor­ough get a bet­ter deal than it ex­pected, even three weeks ago. In­stead of debt ser­vice pay­ments on the 2012 bond start­ing at $400,000 per year in 2014, mar­ket con­di­tions now al­low the bor­ough to step up its debt ser­vice by $2S0,000 in 2014 and $1S0,000 in 2015 to pay for the new bond.

“The to­tal net in­ter­est rate on the en­tire is­sue is 2.8S per­cent. So some­one is vol­un­tar­ily lock­ing up their money for that amount, for that du­ra­tion of time,” he said.

Those rates break down to a 0.75 per­cent in­ter­est rate start­ing in 2014, 1 per­cent start­ing in 2022, 2.8 per­cent start­ing in 2030 and a 3 per­cent in­ter­est rate at the last year of ma­tu­rity in 2034 for the bond — terms that ad­min­is­tra­tion and fi­nance chair Dan Du­ni­gan said are al­most too good to be true.

“Think about what the guy who buys this bond is say­ing. The first year he gets noth­ing back, and in the sec­ond year, for ev­ery dol­lar he lends us, he only gets a lit­tle more than $1.0075 back. It’s amaz­ing the un­cer­tainty that’s out there th­ese days, but in this case it works for us,” Du­ni­gan said.

Be­cause of cur­rent mar­ket con­di­tions, the bor­ough saves $975,000 on de­creased in­ter­est pay­ments be­low the fig­ures dis­cussed at the start of the month, and an ad­di­tional $850,000 in sav­ings have al­ready been re­al­ized by mak­ing the bond bank qual­i­fied, which al­lows banks to deduct the in­ter­est car­ried costs of bonds worth $10 mil­lion or lower, low­ers their call time to five years from the 10-year pe­riod on the 2010 bond, and widens the mar­ket for those bonds thereby low­er­ing rates, Mur­ray said.

“I can’t tell you there will be a time I would think th­ese rates will ever be this low again,” he said.

Bond coun­sel Dave Na­sitier of Thorpe Reed out­lined a 43-page debt or­di­nance that bor­ough coun­cil unan­i­mously ap­proved and spells out the terms of the bond bor­row­ing — “es­sen­tially the con­tract you would en­ter into” by ap­prov­ing the bond bor­row­ing.

Coun­cil and pub­lic com­ment briefly de­bated the ques­tion of whether the $42 mil­lion project list con­sisted of needs or “wish list” items, and sev­eral coun­cil mem­bers pointed out that the cap­i­tal project list was devel­oped by bor­ough de­part­ment heads iden­ti­fy­ing their most press­ing long-term needs.

Coun­cil Pres­i­dent Matt West pointed out that sev­eral stud­ies com­mis­sioned by the bor­ough since the 2010 bond was is­sued have rec­om­mended projects that are on that long term list, in­clud­ing bor­ough fa­cil­i­ties and tech­nol­ogy stud­ies and the find­ings of the 311 W. Main task force — and Du­ni­gan sum­ma­rized by say­ing “the only rea­son it’s a ‘wish list’ is be­cause we wish we could do it all to­mor­row, but that’s not fea­si­ble.”

Res­i­dent Leon An­geli­chio said he was con­cerned that the added debt ser­vice from a 2012 bond could in­crease fur­ther by an­other sub­se­quent bond is­sue, and asked coun­cil to keep in mind a tax in­crease could be nec­es­sary to cover those added costs.

“Are we lean­ing on the tax­pay­ers a lit­tle too much, es­pe­cially in this eco­nomic cli­mate? It’s been a tough cou­ple of years,” he said.

Res­i­dent Joe Cionzyn­ski added that he hoped coun­cil could “sep­a­rate the wish list from the need list, be­cause it seems like you’re spend­ing a lot of money,” and “sooner or later we’re go­ing to have to pay the credit card bill and I’m afraid that might hurt the tax­payer.”

Coun­cil voted 8-0 to ap­prove the 2012 bond bor­row­ing, with Coun­cil­man Paul Cle­mente ab­stain­ing due to his em­ploy­ment with Boen­ning & Scat­ter­good. “Although we work in two dif­fer­ent de­part­ments of the same firm, I will ab­stain none­the­less so as to avoid the ap­pear­ance of im­pro­pri­ety,” he said.

Kirch­ner and Mur­ray said af­ter the meet­ing that the debt ser­vice pay­ment in­creases did not nec­es­sar­ily mean the town­ship’s debt ser­vice mil­lage would need to in­crease, and Kirch­ner said in­creased bor­ough rev­enues — such as $1 mil­lion to $1.5 mil­lion more per year in waste­water treat­ment plant rev­enue from a re­cently con­nected sewer line con­nec­tion to Merck fa­cil­i­ties in Up­per Gwynedd — could off­set the higher debt pay­ments.

“There is good luck, but if you plan well, the good luck tends to hap­pen,” Kirch­ner said.

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