Borrowing local: Willmar lenders consider financing street improvements
WILLMAR -- Discussions are taking place to determine if local lending institutions might be used for the first time to finance Willmar's street improvements rather than using outside lending institutions.
WILLMAR - Discussions are taking place to determine if local lending institutions might be used for the first time to finance Willmar’s street improvements rather than using outside lending institutions.
The idea of using local banks to finance local projects isn’t entirely new. Last December, a group of local banks, led by Heritage Bank, financed a $9.1 million project at Rice Care Center. Other banks involved were North American, Lake Region, Home State and Concord.
Because involvement of the local banks worked well in the Rice Care Center project, the city broached the idea earlier this year with a local lender of possibly financing the 2014 projects, said Steve Okins, city finance director.
“We saw how well this worked for (the Rice Care Center) and we thought why not explore it for our program because the risks are pretty minimal to the banks,’’ said Okins. “We kind of threw it out there.’’
Okins said he talked to an individual at a local institution to see if the bank would be interested. Okins said the bank seemed very interested in trying to be a community leader and participate.
Further discussions with the banks are also involving Kathy Aho, principal with public sector advisor Springsted of Minneapolis. Aho has worked with city officials in the past to coordinate the financing of local projects by outside lenders.
Now, Aho will be coordinating with local lenders.
“We’ve had initial discussion with the local institutions. But now we’re working through Kathy as our representative to work out the details,’’ said Okins.
Aho said she’s seen local lenders finance local street projects in a number places, although it’s not real common. She said it all depends on the local institutions, what funds they have, and if the local rate is competitive with what the issuer can otherwise get in the marketplace.
“The municipal market works really well and it’s very competitive,’’ said Aho. “Sometimes it’s an issue of rates. In the past they’ve had more investment alternatives that might have given them a higher yield than a tax-exempt general obligation bond, which is usually what this type of financing is.’’
Okins told the City Council’s Finance Committee last week that discussions have been held with local lending institutions. He said preliminary information reflects little additional costs in using local financing and it would provide the benefit of using local dollars.
Okins told the committee that the city “would offer it to whoever wanted to participate.’’ But he said one bank has indicated it would be willing to step up and finance the whole package if others were not willing to participate.
Committee members agreed that staff should continue to pursue these local financing alternatives and make a recommendation to the committee.
Aho said using local lenders has several benefits. For one, the city can avoid the cost of a bond rating by a national rating agency because local lenders are already familiar with the city compared with outside lenders who may not have that familiarity. Also, there’s more local ownership, and the local lender or lenders receive a public relations boost.
“I think that it is a nice collaboration between the city and the local banks,’’ Aho said. “I am kind of a buy-local-if-you-can kind of person, if all other factors are equal. I think that’s nice to support those entities in your community and we can determine if the pricing is right. Then it just makes it a win-win situation. It’s easier, more streamlined for the city. It can potentially save a little bit of money and then it keeps some business local.’’