The government in Washington, D.C. may be tottering on the brink of a “fiscal cliff,” but what’s bad news for the feds seems to be good news for the City of Gilmer.
Over the past several years, the financial situation of the city has improved enough that it now has an “A” bond rating from the Bond Buyers Index and Standard and Poors.
This enabled the City Council at their meeting Tuesday evening to “refund” (refinance) the city’s outstanding debt, saving $489,000 over the life of the new loan. The new bonds are set to mature in 2027.
The savings come from a cut in the interest rate from the current .0417 percent to .019721 percent, and the fact that due to the new A rating, the city won’t have to buy insurance for the new bonds. This will result in large savings over the life of the bonds, said Jack Martin of Southwest Securities, the city’s financial advisor, who was present at the meeting along with two other company representatives.
(Ed Moore of Southwest Securities, who has worked for several years with the City of Gilmer, Gilmer ISD and many other governmental entities in East Texas, is retiring.)
“Don’t you wish we could all borrow for that?” asked Gilmer City Manager Jeff Ellington about the new interest rate. He said it is “an unbelieveable deal,” and the result of the condition of the bond market, the city’s new rating, and other financial factors coming into play at the same time.
“Bad news in Washington turned out to be good news for us,” Ellington said. “It’s a great rating.
“Not having to buy insurance contributed to our savings,” Ellington said. He said insurance on the bonds would have cost $50,000 to $70,000 over the life of the bonds.
“I’ve been in this business (city government) for 34 years. I’ve never had an A rating at any other city,” he said.
He said the rating was the result of a “lot of hard work on behalf of the city staff,” as well as Southwest Securities.
Ellington said city financial data had to be discussed with Standard and Poors, the national financial rating service, and they were shown the progress the city had made to achieve the A rating.
Ellington said that five years ago, the city’s bond rating was “junk bonds.”
During the eight years or so he has been city manager, indebtedness had dropped from about $26 million to about $12 million.
($4.6 million in indebtedness was assumed by the Gilmer Economic Development Foundation last year, Ellington pointed out.)
Ellington said the city had not had to borrow any new funds for eight years, and has a program in place to reduce its current debt.
“We had to pay the debt down substantially to get an A rating,” he said. He said he knows of no other city about Gilmer’s size with an A bond rating.
Refinancing the debt under these conditions was approved unanimously.