Court bonds will be paid over 25 years

By: Kristyne E. Demske | St. Clair Shores Sentinel | Published January 31, 2013

The city will have 25 years to pay off bonds for the 40th District Court building, which it plans to issue at the end of February.

Mike Gormely, senior vice president for public finance at Hutchinson, Shockey Erley and Co., the investment banker handling the city’s bond issuance, said deciding on a term of 20 or 25 years was the last step before council would approve a bond authorization resolution Feb. 4. That resolution enables the bond to be put up for bid Feb. 26 and the city to have its money by mid-March.

The difference between the two options, Gormely said, was about $250,000 more in interest paid on the 25-year bond. But, he said, the city would have to pay about $122,000 annually on the 20-year bond, compared with paying about $105,000 annually on a 25-year bond.

“I think, in either of these scenarios … the bond should be self-supported and the (city) general fund should never have to step in and support it,” he said. “We’re going to prove to them that this is going to be structured as a self-supporting bond issue, based on the court revenue.”

He said projections show the city would pay approximately 3 percent in interest on a 20-year bond versus an interest rate in the “low 3s” for a 25-year bond.

“On average, it looks like between $15,000-$20,000 more cushion every year,” said Mayor Kip Walby.

Out of the total $3.59 million cost of the court, the court’s building fund already has about $1.79 million saved. About $1.88 million in bonds will be issued.

Gormely said the city has the option, after 10 years, to recall the bonds and completely pay them off or to refinance them.

The city can pay more on the bonds though, before that, if it feels it has enough money in the building fund.

Historically, the fund has averaged about $226,000 in a year collected from court fees. It brought in $212,000 last year, and that is the number the City Finance Department used to project flat revenues for the length of the bond.

“I’m more comfortable with 25 years and developing a separate fund to pay it off early,” said Councilman Peter Rubino in making a motion to proceed with a 25-year term. “I think, probably, we would be able to pay it off earlier.”

The motion passed unanimously.