The interest rate on $3 million in revenue bonds for the city park renovation plan is “a very strong rate,” according to a source within the municipal bond business.
Thursday morning Columbus City Council voted to accept a 5.35% interest rate on a $3 million bond issue for a proposed park renovation project. The bonds are for 10 years, with yearly payments of about $389,000.
The $3 million will augment the approximately $1.7 million the city already has on hand from the local tourism tax, which collects an extra 2% on prepared food and beverage sales within the city limits.
The source, who spoke to The Dispatch on condition of anonymity due to potential conflicts from other business relationships with the city, said the rate is very good.
“I think it’s a very strong rate for the city, just based on what I can see,” he said. “… For a 10-year deal, that’s actually really good.”
Several factors go into an interest rate for a municipal bond, the source explained. Much of it boils down to risk, and the more straightforward the funding avenue the lower the interest rate tends to be.
“(General Obligation) bonds and water/sewer are the ones most investors focus on,” the source said. “With a GO bond, the city can raise tax rates to fund the bond anytime they want, or the utility can raise its rates.”
A tax stream, such as Columbus’ 2% tax on prepared food and beverage sales, is also a good mechanism, he said.
“A tax stream like that is good, for sure,” he said. “But that 2% tax can’t be raised to 2.25% or 3% at the city’s discretion. … The question is what happens if the revenue declines.”
Broader economy driving higher rates
While the 5.35% is higher than rates the city has paid over the last several years, that’s not a surprise given changes in the economy, Chief Financial Officer James Brigham told The Dispatch.
“I went back and looked at some of the recent debt we have, and it was (between 2% and 3.5%),” Brigham said. “This (5.35%) rate is certainly higher, but that’s the reality of the economy right now.”
Starkville Ward 2 Councilwoman and Budget Chair Sandra Sistrunk agreed.
“We have gotten spoiled with interest rates around 3%, even dipping down into the 2s sometimes,” Sistrunk said. “Now we’re looking at (5%).”
Starkville is looking to issue bonds for its own parks in the near future, and Sistrunk said she expected to get back rates in the neighborhood of 5%.
“We’re doing all we can to minimize our interest rate,” Sistrunk said. “We’re waiting on our (Fiscal Year 2022) audit before we move forward, because we think the numbers will give (lenders) a confidence level that will allow them to give us a break on the interest rate.”
Columbus’ FY 2020 audit was only recently completed and its FY 2021 audit on the horizon. However, that isn’t the obstacle it might appear to be.
“I was a little curious where some of the other cities are with their audit reports, so I did kind of a poll around the state,” Brigham said. “Gulfport, Jackson, Biloxi, Tupelo, Oxford, their most recent audits are all 2021.”
The anonymous source agreed, noting it wasn’t unusual for municipalities to lag behind.
“With municipalities it is extremely common not to have the recent year’s audit in a timely fashion,” he said. “It’s not a city of Columbus deal. It’s (like that) all over the country.”
As for the city only getting one bid, the anonymous source said it could have to do with a lack of liquidity.
“Part of the driver could just be the appetite at the bank level,” he said. “In the (COVID-19 pandemic years) when all banks were flush, it was a food fight to get a municipal (bond) deal. … Now rates have gotten up, and it’s just draining the system of liquidity. A lot of banks in general have turned down their appetite for municipal deals.”
Nnamdi Thompson with Government Consultants, who handled the bond deal for the city, did not return Dispatch phone calls seeking comment by press time.
Does a lack of credit rating hurt Columbus?
Columbus also lacks a public bond rating, but it likely didn’t hurt it all that much, Brigham said, and may have helped.
In 2020 the city converted all its debt from public to private, and since then has not had a bond rating with Moody’s Investors Service or S&P Global Ratings. Bond ratings depend on regular financial audits, which the rating agencies use to gauge the city’s safety as a borrower.
Because it doesn’t have a bond rating, the city had to seek private investors to buy the bonds.
“I’m not sure it would have helped us (to have a bond rating),” Brigham said. “The city hasn’t been through a review (by S&P or Moody) in such a long time it may actually have hurt us. They can usually pull up audited statements, but if we don’t have 2021 or ‘22 finished yet, the information they would have is pretty stale.”
The council voted in August to begin the process of selling the bonds. The majority of the money will go toward work at Propst Park. The plan calls for the baseball and softball facilities at Propst to be swapped, and the baseball fields turfed. There are also planned upgrades and repairs to buildings, pavilions and the splash pad at Propst, better lighting at the Field of Dreams and the addition of pickleball courts.
The overall plan, estimated at $4.4 million, also includes renovations and repairs at all of the neighborhood parks.
Brian Jones is the local government reporter for Columbus and Lowndes County.
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