Similar to a homeowner refinancing the mortgage on a house to save money, the City of Geneva this week took advantage of low interest rates and refunded some of its bond debt.
The move saved the city and its taxpayers roughly $801,000.
The action, which the City Council unanimously approved Monday evening, covers three sets of bonds that originally were issued for upgrades to the wastewater treatment plant and other purposes.
“Essentially, we were borrowing money for debt that was issued at 6-percent interest,” said Ald. Don Cummings, a financial expert. “Now we’re borrowing money at 1.5, paying off the 6-percent debt and putting money into an escrow account that will pay off those bonds at the lower rate.”
City Administrator Mary McKittrick said Geneva’s public financial consultant, Speer Financial, approached the city when the refunding opportunity came about.
“They contacted us, and the more we continued down that path, the better the refinancing looked,” McKittrick said. “It started out to be a savings of about $600,000, and then it went to 700 and final amount was about $800,000.”
In order to accomplish the savings, Speer representatives had to shop the notes on the open bond market. The transaction and sale took place during the business day Monday.
“It speaks to the credit quality that you have and the responsiveness of the bond market to the city,” said David Phillips, senior vice president of Speer Financial.
Taxes for Geneva residents will decrease slightly over time because one of the three bond issues has debt service that comes directly from a property tax fund. Since a lower interest rate on the bond debt was obtained, property taxes will accordingly decrease.
The reissued bonds were sold as “callable,” or debt that the city can buy back prior to the maturity of the note.
Officials said a non-callable bond might yield a slightly higher rate of return but is not as flexible because it cannot be cashed out until the full term of the issuance.
Cummings said: “You’re paying a little more for the option of being able to buy that bond back.”
“The question becomes, ‘Do you give away that flexibility for future opportunity?’” said Phillips.
McKittrick said there may be an opportunity later this year to save more money by refunding and refinancing bonds associated with Geneva’s electric utility.
“It’s remarkable and very fortuitous that you sold bonds at a good time to take advantage of this good market,” Phillips told aldermen.
“Fortuitous or good planning?” asked Ald. Chuck Brown.
Phillips answered: “We’d like to think it was good planning.”
