The Caledonia Natural Gas District is refinancing an old bond in an effort to keep costs down, according to board president Jane Kilgore.
The bond, which dates back to 1996, was originally issued for $4.6 million via the Farmers Home Administration, the predecessor organization to the Rural Development Authority.
The bond payments originally had a 7 percent interest rate, which was refinanced down to 4.5 percent in 2006. Now the natural gas district is again trying to get a lower interest rate, Kilgore said.
“The way it was financed to begin with, our (yearly) payment was going to keep getting higher and higher,” Kilgore said. “We are trying to level it out for the rest of the term.”
The original bond money was used to get the district on its feet in its early years, board attorney Jeff Smith said.
“The money went to buy right of way, pipes, digging, trenching, installation, things like that,” he said. “It all went into building the infrastructure.”
Smith said government bonds don’t work the way most people assume debt works.
“The thing people don’t understand about government loans is they start out with a real high interest rate and a real low principal,” he said. “The bond payments get higher as you get closer to the end.”
He likened it to a mortgage steadily getting more expensive as time went on.
“Imagine having a house payment and it starting off at $600 per month,” Smith said. “Then 10 years later suddenly it goes from $600 to $2,000, and then it goes up every month until it’s $10,000 or $15,000. That’s what government bonds do. It’s not the same payment amount every year.”
Smith said the district was facing a situation where its yearly payments were going to go from about $363,000 to $414,000 in two years to more than $500,000 by the time it’s all said and done.
The new rates will be set at $414,000 every year, Smith said.
“State law requires a bond refinancing to save at least 2 percent over the life of the loan,” he said. “This will end up saving us 4.84 percent.”
That comes to $207,000 in savings over the remaining life of the bond, which will mature in 2029, he said.
“We hope that we’ll be able to lower rates for all our users once the debt is paid off,” Kilgore said. “One of our goals as a board is to lower prices for our customers.”
Smith said if anyone in the service area wants to file an objection to the bond refinancing, they have until 9:30 a.m. on April 25 at the chancery clerk’s office.
“If there’s an objection the judge will set a bond hearing,” he said. “But the (objector) has to have a reason. It can’t be just, ‘I don’t like natural gas’ or something like that. This is America, you can protest, but at the hearing you’ve got to have a reason.”
Smith estimated the district has 2,099 meters throughout its service area.
The natural gas district was established by the legislature in 1988, Smith said. It has a five-person elected board. Three-year terms are staggered.
The current board members are Kilgore, Don Myers, Matt Egger, Woody Kidd and Brad Box, Smith said.
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