The city of Starkville saved over $300,000 by refunding outstanding debt after refinancing issued bonds.
Ward 2 Alderman and City Budget Chairman Sandra Sistrunk said the total money saved from refinancing the bonds equaled out to $302,416.33.
Sistrunk said there were two sets of debt she refinanced, which came from the Parks and Recreation Department’s bond issued in 2007 and a bond issued for the city. The two projects the bonds were used for were the Sportsplex and the construction of the new City Hall.
Sistrunk said the money paying for the bonds come from two different sets of funds. The money for the Parks and Recreation bond comes out of the two percent food and beverage tax, while City Hall is paid for out of the general fund.
Sistrunk said both bonds had coupon rates at a particular level, which allowed the city to take advantage of the current interest rates.
“We roll those together as far as an issuance in order to save on some of the issuance cost and make it a large enough issuance to have some interest there,” Sistrunk said.
Sistrunk said the bonds are broken down into components and are only refunded the bonds where it made sense financially. She said the reason the city would refinance the bonds is to create savings on what they’re paying out on interest.
“Municipalities everywhere and businesses everywhere do it,” Sistrunk said. “You just kind of monitor debt, make sure there is not a better deal out there as far as funding goes.”
Sistrunk said when there is a better deal, the city must go through the process to follow and reissue new debt to replace the old debt. The city has refinanced bonds in the past and it is not an uncommon practice, but it is market driven.
“For the last several years, we’ve been in an environment where interest rates. were low and so there wasn’t much advantage to refinancing,” Sistrunk said.
Sistrunk said the longer term portions of the bonds had a high enough interest rate and were callable, which means the city could actually retire them and it made sense for the city to financially refund them.
For current bonds with the industrial park and Starkville Police Department’s new headquarters, Sistrunk said in the future if the interest rates make sense, they will look to refinance those bonds.
“When you issue the bonds, they will typically have a call date and the new tax bill has eliminated the possibility of advanced refunding, so now we have to wait for the call date on a bond,” Sistrunk said. “It’s possible there may not be anything mechanically we could refinance until six, or eight years in the future.”
According to the gross debt service comparison, for this year the old debt service for the bonds was at $137,000 while the new debt service is now $22,000. For 2019, there will be a total saving of $148,225.00 with the old debt service being at $549,325 and the new debt service at $401,100.
“From there it just starts to be a few thousand dollars each year on through the end of the bonds,” Sistrunk said.
Sistrunk said the city has “front-loaded” its savings because if it were to take the $302,000 and spread it over the 15-year period, it would have very little impact at the city budget level.
“At the city budget level, $15,000 or so doesn’t really allow you to do anything particularly large,” Sistrunk said. “It almost gets lost in the shuffle.”
She said by front-loading the savings, the city will be able to focus on larger projects and see the benefits of refunding, rather than just spreading it evenly. She said there is not a particular project the board is looking at doing at the time.
To provide perspective on the funds which have been freed up, Sistrunk said the Parks and Recreation Department recently installed playground equipment at J,L. King Memorial Park, which came with a price tag of $43,000. She said if a portion of the $300,000, at $125,000 were related to the parks, it could go towards new equipment, shade structures or even a new basketball court. She said it would not be enough money to construct an indoor facility.
Sistrunk said she is appreciative of Mayor Lynn Spruill announcing the savings publicly, because refinancing bonds is something residents don’t see or talk about, but it is a necessary procedure to make sure the city is making the most out of the money it is spending and receiving.
“I think it’s a recognition of our responsibility to be good stewards of the taxers dollars,” Sistrunk said.