State bond plan saves cities costs
Salem will be saving an estimated $425,000 in interest costs by making use of a Massachusetts program that allows approved cities and towns to use the state’s bond rating when borrowing money for projects.
The Massachusetts Municipal Finance Oversight Board on July 11 approved Salem’s application to issue $62.02 million in long-term “qualified bonds” through the program to fund two school projects and other capital improvements.
At the same meeting, the board authorized Methuen to issue $2.3 million in qualified bonds under the same program for various equipment purchases, including a fire truck.
The state program is designed for communities and regional school districts that need to borrow money and have a lower bond rating than that of the state. By using the state’s bond rating, they are able to save on interest costs.
“The city will be able to piggyback on the state’s more favorable bond rating. That will in turn get us lower interest rates on our bonds,” said Richard Viscay, Salem’s finance director. He said the city’s financial adviser has estimated that by tapping the state’s bond rating, the city will save $425,000 over the 30-year life of the debt service.
Viscay said the city has an A rating with Standard & Poor’s. The state’s rating with the same agency is AA+, and the rating it allowed Salem to use for the program was AA.
“Any time we have the opportunity to save the city and its taxpayers $425,000, we certainly want to take advantage of that,” Viscay said. “We just think it’s good government.”
To obtain approval for issuing a qualified bond, a city, town, or regional school district must meet certain requirements, including demonstrating to the state oversight board the need for the project and its ability to meet the cost of the debt.
When the municipal applicant is approved to issue the bonds, the state treasurer’s office makes the annual debt service payments to the bond holders, and the state then recoups its cost by deducting the amount of those payments from the community or regional school district’s local aid allotments for those years.
Salem anticipates issuing the recently approved long-term bonds in September.
The bulk of the qualified bond authorization, or $56.6 million, is for the the renovation projects at Collins Middle School and Saltonstall Elementary School.
The Massachusetts School Building Authority is covering 78 percent of the costs of the two school building projects through its Green Repair program, which helps school districts fund roof, window, and boiler repairs that improve energy efficiency.
Viscay said that while the city is authorized to borrow $56.6 million, it will ultimately only borrow $13.5 million, representing its share of the project costs.
The city’s overall $62.02 million in bonding also includes $2 million for City Hall repairs, $125,000 for technology equipment, $200,000 for Parking Department equipment, $120,000 for four new police cruisers, $65,000 for a Department of Public Works pick-up truck with a plow; $800,000 for repairs to roads, sidewalks, and crosswalks; and $125,000 for repairs to the Collins Cove seawall.
The bond would also provide $35,000 for a Park and Recreation Department vehicle with a plow; $177,500 for two new school buses; $375,000 for sewer infrastructure; and $1.4 million for environmental clean-up work at McGrath Park.
Viscay said the city made use of the qualified bond program on at least two previous occasions: in 2008, when it issued $23.49 million in bonds for capital improvements and bond refinancing, and in 2010, when it issued $10.55 million, mostly for water system improvements and roadwork.
The four-member Municipal Finance Oversight Board is composed of the attorney general, the state treasurer, the state auditor, and the director of accounts in the Department of Revenue. State Auditor Suzanne Bump is the board’s chairwoman.
Other area communities that have secured approval from the board to issue qualified bonds this year include Lowell, which was approved in June for $30.2 million in borrowing for refunding qualified bonds, high school green repairs, and water utility system upgrades, according to Bump’s office.
Medford was approved in June to issue $9.39 million for stadium and turf field repair, school technology, sidewalk improvements, high school pool repairs, and fire station repair and reconstruction
Chelsea was approved in March to issue $1.6 million for refunding bonds and capital improvement projects.
The $2.3 million bond that Methuen was approved to issue includes $1.4 million to pay for new radio communications equipment for the police and fire departments, $500,000 for a new fire pumper truck, $250,000 for a new ambulance, and $150,000 for five new police cruisers.
The city has purchased the equipment through short-term borrowing and will now roll those notes into longer term qualified bonds, according to city auditor Thomas J. Kelly.
“It’s a good thing for communities to be able to do this with the state because it does save on their interest,” said Kelly, who did not have an immediate estimate of the savings from the recently approved bond.
Methuen used the same program last year when it was approved to issue $40.6 million in qualified bonds, $40 million of that to fund the city’s share of the $99.06 million high school building project, and $600,000 to pay a court judgment.
Kelly said the city estimates it will save about $1 million in interest costs on the school building from its participation in the state program.