Action expected to save Clinton approximately $200,000 and free up debt service for future capital projects has been taken by City Council, which signed off on refinancing federal loans that paid for downtown revitalization over the last decade.
Assistant city manager/finance director Shawn Purvis first introduced the opportunity in January. He said interest rates are nearly 2 percent less now than the city’s current rates on USDA financing agreements.
The city has three financing agreements with USDA representing a $3 million investment for downtown revitalization projects — one for Phase I and two for Phase II — undertaken in the past decade. Phase III was just completed last year and was not subject of the refinancing.
Purvis said the move could reduce the city’s long-term debt obligation and improve its financial sustainability. A public hearing was held last week, during which no one spoke. In accordance with N.C. General Statute and Local Government Commission guidelines, the city must approve a resolution authorizing the filing of an application for approval of a financing agreement involving real property.
“This resolution presents the statements of fact to the LGC on why we’re looking toward refinancing,” said Purvis.
The Council unanimously adopted the resolution.
Purvis previously laid out the sizable benefit in savings that could be had by the city through refinancing USDA loans.
“The recent recession and current economy has suppressed interest rates to an all-time low,” Purvis said. “When the city secured the agreements, favorable interest rates were between 4 and 5 percent. Since the 2008 recession, interest rates have reduced considerably to less than 3 percent.”
The city of Clinton’s initial loan was for $425,000 at 4.25 percent. It has 11 years and $276,314 in principal remaining until complete amortization, the period for which a payment is fully accounted. For the second downtown revitalization, the city has two separate loans totaling $750,000 at 4.375 percent. These loans have 17 years and $646,666 in principal remaining until complete amortization.
Refinancing those loans “could involve interest rates less than 2.5 percent, which may represent a significant long-term savings for the city,” Purvis said. “It potentially could reduce the city’s long-term debt obligation within the General Fund, which has the greatest need of large capital projects that will likely require additional funding.”
Placing the loans in the private market requires approval from the LGC because of the amount, he said.
For the Phase I loan, a proposed 10-year refinancing schedule (the only one available due to the 11 years remaining) would bring an interest rate nearly 2 percent less than the current 4.25 percent rate, at 2.29 percent. The net savings would be $39,345, with the 11th year payment of $32,000 eliminated from the debt schedule completely. Two loans for Phase II have 16 years of debt service payments remaining, and each can be refinanced at 10 or 12 years. For either option, the proposed rate would be 2.49 percent, down from the current 4.38 percent.
According to Purvis’ analysis, the total net savings for the 10-year financing on Phase I and Phase II loans (Option A) would be $221,000. Option B, 10-year financing on Phase I and 12 years on Phase II, would yield a proposed savings of $196,000.
“While Option A presents a greater net savings by $25,000, it may cause a greater short-term strain on the budget than Option B, which is only two years longer and may be the best refinancing option to consider. That option will help the city long-term while not creating short-term cash flow concerns.”
Demolition bid awarded
In other business, the Council awarded a bid for the property at 303 Lisbon St., formerly the Catholic Church Educational Building, to be demolished.
City manager John Connet said, “after extensive thought and discussion among staff” about what to do with the house at 303 Lisbon St., demolition of the structure is believed to be in best interest of the city. Connet recommend approval of the bid to D.H. Griffin Contracting in the amount of $25,220.
Mayor Lew Starling asked whether city staff believed that the demolition was necessary and the building was “beyond repair.” Connet said that was the case, noting extensive repairs, notably for the roof of the structure, which has sustained water damage. Funding those repairs would divert money from other building projects on the city’s radar.
“It is city property,” Connet said. “This decision is based on our many other building needs and not having the resources to renovate this structure. It is in the best interest of city buildings and, if we’re asking our property owners to maintain their facilities, we have to do ours too.”
Chris Berendt can be reached at 910-592-8137 ext. 121 or via email at email@example.com.