CITY OF PICKERINGTON

FINANCE COMMITTEE OF COUNCIL

CITY HALL, 100 LOCKVILLE ROAD

THURSDAY, MAY 1, 2003

FINANCE COMMITTEE WORK SESSION

7:30 P.M.

1. ROLL CALL. Mr. Wright called the work session to order at 7:30 P.M., with roll call as follows: Mr. Parker and Mr. Wright were present. Mr. Fox was absent. Others present were: Councilman Sabatino, Linda Fersch, Lynda Yartin, Dennis Schwallie, and Peter Ross.

2. SCHEDULED MATTERS:

A. Review of Bond Refunding Analysis. Mr. Wright stated he had asked for this work session in order to allow all council members the opportunity to see the presentation by Mr. Ross and Mr. Schwallie. Mr. Wright stated the Committee had also received a draft copy of the draft ordinance Mr. Schwallie had prepared that would authorize the refunding.

Mr. Schwallie stated in 1994 and 1995 when the City issued these bonds, they had very good interest rates attached to them. He stated, however, that as everyone knows the interest rates have come down and this would allow the city to take advantage of the current low rates and save some money. He stated the problem is that typically bonds are not prepayable for the first ten years of their life, so the first call date on the 1994 bonds is 2004, and the first call date on the 1995 bonds is 2005. Mr. Schwallie stated what he was proposing was an advance refunding, which meant you borrow money now to pay off those bonds when we can, and in the meantime those bonds are invested in the U.S. Treasury so for all practical purposes they are off the City’s books from the date of the new issue. Mr. Schwallie stated the essence of this refunding was that we would swap from an old payment schedule to a new payment schedule that, if done right, would save the City money each year.

Mr. Ross stated since 1991 interest rates have declined drastically and the rates right now are as low as they have been for many years. He stated if the City does nothing on the water system improvement bonds issued in 1994, you will pay $1,524,243.75 in principal and interest, with an interest rate of 5.85 percent. He stated further on the wastewater treatment plant improvement bonds issued in 1995, this would mean the City would pay $2,707,135 in principal and interest with an interest rate of 5.5 to 5.9 percent. Mr. Ross stated the total of these two bonds, added together, is $4,231,378l75, but if you exercise the call and pull those bonds back out of circulation, the debt service could be bought out for $3,401,558.73. Mr. Ross stated in order to accomplish this, at today’s interest rates, you need to issue bonds in the amount of $3,375,000, most of which would be put into escrow to pay off the old bonds. He further stated the interest rate on the new bonds would start at about 1.1 percent and go to 3.75 percent, so the average interest rate on the new bonds would be less than 3.2 percent. Mr. Ross stated the savings to the City would be approximately $135,608.75 over the life of the bonds. Mr. Ross stated the new bonds would run through the same time frame as the old ones, no years would be added. He stated this would be a savings of somewhere around $10,000 per year to the City.

Mr. Ross stated there is no absolute, but very often a bench mark of about three percent or better is used as the minimum savings that a community is looking for before they go forward with this type process. He stated the one thing he would point out is that these numbers change daily as the rates can go up or down. He stated the idea of bringing this to Council and allowing the preparation for the bond issue to go forward, then the issue can be immediately brought into the market when all of the numbers are where the City wants them. Mr. Sabatino ascertained that once the authorization is given and the advance preparation has been completed, the actual transaction can be completed in a very short time. Mr. Ross stated the preparation can be taking place at the same time the legislation authorizing the refunding is going through it’s readings on council floor. Mr. Ross stated the Finance Director would authorize them to go forward with the transaction when she determines the rates will provide the savings the City wants. Mr. Wright stated this legislation would give Mrs. Fersch the authorization from Council to act on the savings without having to come back to this Committee or Council. Mr. Wright stated this is a one time opportunity, and Mr. Schwallie stated the IRS only allows this to be done once in the lifetime of the bonds. Mr. Schwallie stated no one knows if the rates are going to go lower, and there is the possibility they could go up. He stated when Council authorizes Mrs. Fersch to go forward this legislation it will tell her what minimum savings she will have to have.

Mr. Parker clarified that with regard to the ten mill cap on borrowing for the County, this would cause the City’s millage requirement to drop very slightly, so the impact would be minimal. Mrs. Fersch clarified this is an open ended authorization, so if the rates are not where we want them right away it can just be held until they are. Mr. Wright stated it would be his preference to have this accomplished as soon as possible if that is what Council decides they want to do.

Mr. Parker stated he thought this was something Council should take advantage of while we can. Mr. Wright stated he would like to schedule a special Finance Meeting within the next few days so the Committee can determine what the percentage of savings Council would require for Mrs. Fersch to authorize the transaction.

3. There being no further questions or comments the Work Session closed at 8:05 P.M., May 1, 2003.

RESPECTFULLY SUBMITTED:

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Lynda D. Yartin, Municipal Clerk