 The loan from the IEPA was given to the city for the
remodeling of the city's waste treatment plant.
In 2001 the city began working on a modification to the plant
that would bring it up to EPA standards in the state of Illinois.
The modification wasn't necessarily one the city did by choice, but
rather something they were forced to do by the EPA.
At that time, the EPA was offering low-interest loans to all
municipalities that completed their upgrades. The city applied for
such a loan and received approval in 2002 for a $9.8 million loan at
an interest rate of 2.557 percent.
Conzo said the city started the loan in 2005, and it is scheduled
to be paid off in 2024. He said the original amount of the loan was
$9,551,000. As of the end of this month, the remaining balance on
the loan will be in excess of $6 million. He confirmed the interest
rate of the loan was 2.557 percent and said at that time this was a
low rate.
He then commented that in the last few years there have been
significant dips in interest rates. While this has hurt the city in
their interest-earning accounts, Conzo said they were now in a
position where they could take advantage of the low interest and
refinance this EPA loan through an alternative revenue bond.
The city is familiar with bond issuance as they have a common
practice of issuing general obligation bonds to help support cash
flow. The bonds themselves are quite similar to loans in that they
have to be paid back over time with interest. They differ in that
they are secured by specific dollars coming into the city. In the
general obligation bond, these dollars come from tax revenues.
In the alternative revenue bond Conzo is suggesting, this would
not be the case. The bond security would be revenue from the sewer
bills, so there would be no change in taxes, no tax referendums or
increases in taxes to Lincoln residents.
Conzo said he, Mayor Keith Snyder and finance chair Melody
Anderson have been talking with John Vezzetti of Bernardi Securities
of LaSalle about issuing this new bond, and Vezzetti has prepared a
variety of proposals for the city to consider.
Conzo walked through a couple of these options. He said the first
option would be a refinance of the EPA loan through a bond issuance
at 2.21 percent. He said the bottom line was that over the length of
the bond, the city would save $89,291.
He said another option was a monetized savings option that would
bring a net savings of $83,000.
In the third option, three examples were included in what Conzo
said was an equity contribution plan. In this plan the city would
pay some of the loan upfront and finance the rest of it through the
bond.
For the first example, Conzo said that if the city paid $150,000
upfront, then issued the bond for the balance, their savings at the
end of the bond would come to $300,000. However, he also said he
thought making that kind of upfront payment for the city was "kind
of steep."
The second example included a $40,000 upfront payment and would
save the city $113,000. The final example was an upfront of $15,000
and would save the city $106,000 overall.
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Vezzetti was on hand at the meeting to answer questions. During
the discussion he said that it was important to understand what is
going on with interest rates. He talked about the going rates in the
1970s being at about 5 percent, then in the '80s spiking up to the
12-15 percent range. He said they have spiraled downward since then
and have recently been at all-time lows. He noted there had been a
slight spike in rates recently, but he also sees they may be going
back down again.
Speaking specifically about the EPA loan, Vezzetti said the loan
carried no interest penalties for early payoff, which is important.
Vezzetti had provided each member of the council with an
information packet. He pointed that out to them, then asked if
anyone had questions.
Snyder asked if the figures presented to the council were
determined assuming the city had an "A+" credit rating. Vezzetti
confirmed that to be the case. Snyder then asked if there was any
reason to believe the city would not have an A+ rating.
Vezzetti said that was something the city needed to pursue to see
what their rating would be. He said the ratings would be done by
either Standard & Poor's, Moody Financial, or Fitch. He added that
in his proposal, getting the rating was included in the cost of the
refinancing.
Vezzetti said he had put together a timeline for the refinance
and that it needed to be done as soon as possible because of
interest rate changes.
He said the city would have to pass an authorizing ordinance,
then publish it for 30 days. After the 30 days there would need to
be a bond hearing; then the actual bond could be issued. He
projected that the city could and should have a goal of the middle
part of March for the closing date.
He was also asked what happens if the rates go up during this
process. Vezzetti said that from the time the ordinance is passed,
the city actually has three years to enact it. Therefore, if rates
go up, they have the option to wait and see if they go back down. In
addition, Vezzetti said if they don't go back down, the city can
drop the idea altogether and stay with the EPA loan they have now
without any kind of penalty.
Conzo also noted that between now and the middle of March, the
rates could drop even more, thus saving the city more than is
currently being projected.
Conzo also told the council that as an alternative revenue bond,
a tax abatement ordinance would need to be passed annually.
It is expected that the council will deliver a vote on this next
week, but it is at their discretion to table any item they feel they
are not ready to make a decision on.
[By NILA SMITH]
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