Spicer looking into bond options for Lake Avenue South
SPICER -- Spicer will search for the best bonding option for financing the Lake Avenue South project after the city's participation in a multi-community financing program was canceled last month.
The City Council decided Tuesday that the city needs to investigate the bonding interest rates of three local banks before settling on a financing plan worth $500,000 in general obligation bonds.
During Wednesday's regular meeting, city financial advisor David Drown of David Drown Associates presented a financing option for the bonds that includes a 5.1 percent interest rate.
Spicer owes $1.54 million of the project's $3.3 million cost. Kandiyohi County is paying the remaining fees. The city planned to pay $1.04 million in cash and $500,000 in bonds.
In late August, the city approved financing the project by entering a multi-community financing program with the Minnesota Rural Water Association. The program would have given the city a 4.25 to 4.75 percent interest rate on the bonds, resulting in savings of $30,000 in interest over the 15-year bonding period.
According to an Oct. 8 letter from Drown to the city, the option was terminated after the sub-prime mortgage crisis hit the markets in September.
Drown said he jumped at the bonding offer presented to the City Council on Wednesday because few banks are taking the risk of a 15-year bonding deal. The bank willing to take the plan, Drown said, was United Prairie Bank of Spicer.
Drown said he was "100 percent comfortable" with bonding with the local bank at the 5.1 percent interest, but advised the city it could "play the market" and see if interest rates decrease or increase in two weeks.
"My crystal ball is no better than yours," Drown said.
Councilman Ron Schneider suggested the city inquires about the interest rates of other local banks because Drown had only approached one local bank. Drown said he approached two outside financial institutions to compare rates with United Prairie Bank.
The council agreed it needed a local comparison but passed a motion to approve the rate with United Prairie Bank if a lower interest rate couldn't be found.
In related business, City Engineer Randy Sabart informed the council that construction for the Lake Avenue South project was on schedule.