St. Clair ShoresApril 1, 2013
Refinancing saves city $70K
By Kristyne E. Demske
C & G Staff Writer
St. Clair Shores will save more than $70,000 in interest payments on the bond that paid for the Lac Ste. Claire marina behind City Hall when it recalls the bonds early.
The Recreation Revenue Bonds that paid for the work still have a balance of $1.08 million. But the city Finance Director explained that the city will be able to recall the bonds as of May 1, paying for the money out of the Sanitation Trust fund.
In doing so, the city would repay itself at an interest rate of 0.5 percent, much lower than the 2 to 4.3 percent it is paying each year on the current bonds.
Mayor Kip Walby told City Council at its second March meeting that there were two options for repaying the Sanitation Trust — either at the current schedule, which would have the debt paid off in three years, or throughout six years instead.
Stretching the debt over a longer period of time, he said, would “help establish cash flow.”
“It’s tough back there at the marina,” he said. “It’s tough to make a profit back there. We don’t make a profit there.”
Acting City Manager Mike Smith said the city would save $81,810 in interest if it simply continued the three-year repayment schedule to itself and recalled the bonds now. Stretching the amount over six years, he said, still saves the city $73,860 that it would have had to pay, had it not recalled the current bonds.
And paying the money off throughout six years would cost the city approximately $130,000-$160,000 less each year, helping bridge the gap between marina revenues and expenses.
“Historically … we have had to use general fund dollars to balance the difference between recreation revenue and recreation expenditures,” Smith said. The six-year repayment “would assist what has been a drain on the general fund.”
Walby said the city has borrowed from itself before, once to purchase optical scan voting machines and once to put in a sprinkler system at the golf course. Both times, he said, the move was to save money on interest costs.
Councilman Peter Rubino pointed out that the city may be paying a lower interest rate than it earns on the money, as well as the fact that the city was still saving 70 percent of the interest it would have paid out if nothing was done.
Councilman Anthony Tiseo agreed.
“Either scenario, we can pay it off at that point anytime we want to,” he said. “With the idea that we could pay it off early, that $10,000 could easily be made up.”
A motion by Councilman John Caron was supported by Rubino to recall the bonds and finance the payment with the Sanitation Trust fund over six years.