City Plans Debt Refinance

September 8, 2009
No formal action was taken Tuesday night, but the Arab City Council did discuss and decide in principle to consolidate two previous bond issues, and to borrow enough additional money to pay off two short term loans with a little left over for other needs.  Mayor Gary Beam brought the proposal up during the council work session prior to the regular council meeting.  The council will likely vote on the proposal at the next council meeting.

Beam said the finance committee has been looking into the feasibility of rolling two previous bond issues into a new single bond issue.  Beam told the council that a decision needed to be made whether to borrow new money in addition to the bond totals.  "Basically we have two options, we can borrow an additional $1 million, or we can go for $2 million"   Beam recommended the $2 million option . 

Finance committee chairman Brian Bishop said the additional $2 million would be used to payoff short term debt that the City already has.  $1 million would payoff a loan from Citizens Bank.  That loan was used to purchase the former Couch property on North Brindlee Mountain Parkway.  The property is being developed as a retail center and will be known as the Shops at Northridge.  Another portion would be used to payoff the TVA loan which financed the NABTEC business incubator project.  The remaining money could be used for the development of the Northridge project.

The council anticipates selling parcels of the Northridge development to individual retail businesses.  The proceeds from the property sale could be used to pay off the bond issue or could be rolled into the City's general fund to be used without being restricted to capital improvements according to Bishop.

According to Beam, the proposed new bond issue would result in a $78,000 per year payment increase over the current combined payments on the two bond issues.  He said the additional payment would be offset by the anticipated sale of the NABTEC building to Snead State Community College and the annual $72,000 payment from the college.  "The net increase would only be $6,000."  Beam added.

Bishop said refinancing the two prior bond issues would save the City $140,000 in interest payments over the life of the loan.  The new loan would roll a 1997 and a 2002 bond issue into one.  The total amounts still owed on the two bonds was not available during the meeting.  Beam said he would ask Morgan Keegan to have a formal proposal with exact numbers ready for the next council meeting.

Bishop said the refinance would not extend the terms on the old debt and by borrowing the entire additional $2 million at one time the City would save issuance and other fees that would be necessary should the council borrow $1 million and then decide to borrow the other $1 million at a later date.

Beam said that while it looks like we are borrowing an additional $2 million, the money is really already borrowed and we are just refinancing at a longer term.  He said that like everything you do, there is some risk involved in the development goals the council has set out but believes it will pay off in the future.  "We are subjected to criticism for the decisions that we make but we are doing what we think is right for the future."

Councilman Johnny Hart said he believes that it is a long term investment in Arab.   Bishop said the council is charged with doing the best that it can for schools and the city through economic development.

In other business, the council approved bid specifications and authorized bids for T-Shirts, caps, and screen printing for the Arab Park & Recreation department.  They also amended the FY 2008-2009 Operating Budget to reflect recent expenditures totaling $356,029.37.