Allen Park Finance Director Robert Cady (left), and Brian Lefler, investment bank and advisor with Baird, listen as Bond Counsel Jarrod Smith (third from left), finance attorney with Dykema Gossett PLLC, explains the interest cost savings of refinancing some and redeeming other city bonds at the Feb. 26 Allen Park City Council meeting, as City Clerk Michael Mizzi, Councilman Larry Templin, Councilman Angelo DeGuilio, City Attorney Joseph Couvreur, Mayor William Matakas and City Manager Mark Kibby listen.
By SUE SUCHYTA
Sunday Times Newspapers
ALLEN PARK – The City Council approved the refinancing of city bonds at its Feb. 26 meeting, saving the city $9 million in interest while redeeming the remaining high interest movie studio bonds.
The proceeds from the sale of land at the site of the old city hall funded some of the bond redemption and the refinancing of other bonds at a lower interest rate, given the city’s improved credit rating, will save the city millions in interest, Finance Director Robert Cady said.
The bonds in question include 2003 and 2010 voter-approved millage bonds; the 2007 Brownfield bonds used to develop Fairlane Green, a retail complex built atop a former landfill; and the 2009A and 2009B bonds for Unity Studios.
“If we get to the A rating that we need, we feel there is some significant savings in refinancing these bonds that are out there at fairly high interest rates,” Cady said. “The three highest are the 2003 A and B, which are the community center bonds, the 2007 Brownfield, and the last bonds we pulled for the movie studio.”
Cady said the yearly savings for all three sets of bonds is about $180,000 annually by refinancing them. The time period for payback is the same, Cady said, but the interest rate would be significantly lower, which represents a savings to the city’s residents.
Brian Lefler, investment banker and advisor with Robert W. Baird and Co., said on the Brownfield portion it will allow for a faster reimbursement to the Ford Motor Land Development Corp.
“When we refinance, we lower the payment, which means more money is left over to pay the developer off,” Cady said. “We think we can end the Brownfield up to a year and a half earlier than it would be, by making this move.”
Cady said the state-appointed emergency manager re-did the bond deal when the city was in financial distress, so by refinancing those bonds, there is money available to pay the developer off sooner.
“The 2009 A and B bonds we are actually just calling them and paying them off,” Cady said. “We are using our proceeds from the land contract to buy out the remaining bonds that were not traded in when we did the voluntary refunding a couple years ago. All that will be left for what we did for that whole movie studio will be the 2015 bonds that we refinanced a couple of years ago.”
Mayor William Matakas said that will be a tremendous savings to the city.
“That is almost $9 million that we would save by calling them in at this time,” Matakas said.
Cady confirmed the $9 million savings in interest over the remaining life of the bonds.
Bond Counsel Jarrod Smith, finance attorney with Dykema Gossett PLLC, noted that two of the bond issues which were outstanding and are being refunded were issued pursuant to voter approval, which means the city had the authorization to levy that service, whereas other bonds do not have a resident-authorized debt levy to pay for them, and while they are still a debt obligation of the city, the city does not have the same authorization as with a millage to raise a debt levy to service or pay off the bonds, which explains the difference in wording of the millage and Brownfield bonds, which are being called and refinanced, and the studio bonds, for which the authorization for defeasance (setting aside funds to service the debt, to make them null and void) and redemption is being approved by the city council.
Cady said planning for the city’s future is a priority with him.
“This is really the future of Allen Park because right now you have $2 million in taxes you are collecting that we get almost nothing on,” Cady said. “So once those bonds are paid off, the developer goes away, the Brownfield dissolves, of that $2 million, I think close to $800,000, $850,000 of that are tax dollars that would then come back to the city.
“You hear us say that we can’t increase our revenue – we are limited in what we can do in taxes – but this is actual tax dollars that will actually flow back into the general fund at a future date, so it is basically planning ahead and saying, ‘OK, we know we have got something coming here in the future.’”
City Manager Mark Kibby said the City Council agreed about three years ago to set the money aside (from the sale of the former city hall land) for this purpose, which is now coming to fruition.
“The $9 million in cost avoidance for the next 20, 25 years is just a huge number,” Kibby said.
Cady said there was a lot of work ahead, but they plan to get the bond refinancing and redemption done before the end of the budget year.
Matakas said the holders of the 7.5 percent interest bonds will not be happy that their bonds are going away, and they are not available in a credit-worthy market.
Matakas said it was a priority for the city to get this debt off the books.
“This will be most helpful if we can get this down and help the city and the mayor and council in the future meet those obligations,” Matakas said. “It’s unfortunate – I always call it the ‘Southfield lease property’ because it’s less painful for me.”
Matakas was referring to the movie studio property.
Cady said he had a similar problem when he worked for the city of Riverview.
“I forgot it was a ‘land preserve’ and I kept calling it ‘Mt. Trashmore,’” Cady said amid laughter.
Matakas said the movie studio property debt is an obligation that will be with the city for a long time.
“It makes all of us that sit up here very aware of how careful we want to be with the disbursements,” Matakas said. “Whether it is our annual budget, in terms of trying to have a good capital plan, and a good savings plan, where we can reduce the debt, so it isn’t so burdensome to the future households in our city.”
(Sue Suchyta can be reached at [email protected].)