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Staff recommends combining 2019 sewer refinance with $4M borrowing to save issuance fees and likely reduce costs
Summary
City staff told the committee combining a $1.11M sewer note refinance with an already‑authorized $4M general obligation issue would create a $5.17M package that should reduce issuance fees and interest; staff said USDA parity rules complicate issuing lone revenue debt and recommended a GO issue repaid from sewer revenues.
Staff and the city’s financial adviser briefed the committee on Sept. 17 about the need to refinance several five‑year notes from 2019, including one outstanding sewer note of roughly $1.11 million, and why the city should consider combining that refinance with the $4 million general‑obligation borrowing previously authorized.
The adviser explained that issuing stand‑alone revenue debt would likely require permission from USDA and related state agencies to issue the new revenue bonds on parity with existing USDA loans. Without parity, investor interest in subordinate revenue debt is limited and the city would face higher interest costs or fail to attract competitive bids. Staff said combining the sewer refinance with the $4 million GO issue — producing approximately a $5.17 million package — would allow the city to access broader market demand and avoid duplicative issuance fees, potentially saving tens of thousands of dollars in present value fees and several thousand dollars annually in interest.
Staff also noted revenue‑bond structures typically require a debt‑service reserve equal to roughly one year’s principal and interest, which would increase upfront cash needs. By using the city’s GO credit while pledging sewer revenues for repayment, staff said the city could preserve the utility’s rate structure while achieving lower net borrowing costs.
Timelines: the existing note matures Oct. 21, and staff said a resolution authorizing the combined issue is expected to come to the council on Oct. 7. Committee members asked about alternatives such as renewing the existing bank note; staff said local bank offers do not match long‑term market rates available for a 20‑year issue.
The committee took the briefing as informational and was asked to expect a resolution at the next council meeting.
