Refinancing could save $800K for water, sewer

Record low interest rates may help water and sewer customers of the Pottstown-based systems reap the rewards of as much as $800,000 in refinancing savings.

With two unanimous votes Wednesday night, borough council approved the refinancing of two bond issues undertaken by the Pottstown Borough Authority — a $12.4 million issue for sewer work first borrowed in 2006 and a $5.2 million bond for water system work undertaken in 2009.

Legal advisor Tim O’Neill, from the firm of Lamb McErlane, said because the bond closing is not anticipated until August 22, it would be hard to predict exactly how much money would be saved because of the current volatility of interest rates.

That is why council was asked, and agreed, to vote Wednesday night when it normally waits until Monday, because the financiers are trying to put the sale in place as fast as possible, said O’Neill.

Currently, those rates are low, in part, because of uncertainty in world markets after Britain voted to leave the European Union, according to some financial experts.

How long that uncertainty will affect interest rates is unclear, but current calculations see interest rates as low as 1.2 and 1.3 percent for the remaining money on the bonds.

However, O’Neill said, it is generally unwise to refinance bonds unless at least $500,000 will be saved, an amount he said is highly likely.

The bonds would be auctioned on the Internet in order to ensure the widest possible participation and the fastest return, said O’Neill.

The document from Public Finance Management — which will conduct the sale — that council reviewed before voting showed a total potential savings of $772,145.

Savings are calculated after paying the approximately $270,000 in costs and payments to underwriters, advisors and those issuing the bonds and typically are rolled into the new borrowing to be paid off through regular debt service payments.

Pottstown Finance Director Janice Lee said the money saved would be rolled into the existing water and sewer capital accounts.

As a result, she said, ratepayers may avoid rate hikes tied to capital expenses in both water and sewer plants and systems “for a few years.”

There have been no water or sewer rate hikes in the last three years.

In recent years, the Borough Authority has avoided borrowing money to undertake water and sewer work.

Instead the authority has structured rates to build up reserves in capital accounts so that a regularly scheduled five-year plan of capital improvements for maintenance and upgrades to the plants and pipes — some of which may be older than 100 years — can be funded with cash, thus avoiding interest costs.