City tests roiling fiscal waters PDF Print E-mail
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Written by Richard Kerns   
Friday, 10 October 2008 10:48

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FROSTBURG – As an economic maelstrom of historic proportion broke over Wall Street and markets worldwide, the Frostburg Mayor and City Council stuck their big toe in the roiling waters, to test a possible refinancing of long-term debt that could save the city up to $300,000 over the next two decades.

Meeting Thursday night at City Hall in a public hearing, the mayor and city council voted unanimously to proceed with consideration of bid proposals for refinancing debt from Piney Dam and the city’s joining the state pension system.

The city had solicited bids for the refinancing in August, a month before the storm clouds rose in Manhattan, but it’s a different world already.

Only three banks submitted bids for the refinancing, where in the past the city would have expected six to eight participants.

City staff will now review bids submitted by Sun Trust, Susquehanna and BB&T, and return with a recommendation for the city council’s Tuesday night work session – 7 p.m. at City Hall – with formal action to be taken Thursday night at the regular council meeting, 7 p.m. at the Community Center on Water Street.

In addition to fewer lenders participating in the refinancing, the crisis on Wall Street will likely result in higher percentage rates for the refinancing. The banks that submitted bids committed to locked-in interest rates, but with so much uncertainty in the market, those rates will likely be higher than the city expected when it sought the refinancing.

“Our savings will probably not be as much as anticipated,” said Mayor Arthur Bond.

If that is the case, City Administrator John Kirby noted that the council is free to reject the refinancing. The refinancing ordinance being considered only gives the council the option to act, it does not require any action.

“You don’t have to borrow the money,” Kirby told the council members. “The ordinance allows you to do so. We can put it off for several months.”

Or not refinance at all.

 The refinancing package was put together by Davenport & Co. of Towson, a financial firm that works with local governments throughout the region to refinance debt at lower interest rates, saving taxpayer money in paying back long-term loans. When the council agreed to seek bids, it anticipated savings of about $121,000 from the 20-year loan for Piney Dam, and savings of about $197,000 from a loan the city took out to enroll city employees in the state pension system.

Kirby noted that those projections are “meaningless,” and that any savings will be tied directly to the three bids that were submitted, and are now being reviewed. Davenport sent Kirby a 33-page evaluation of the proposals.

City Finance Commissioner Richard Weimer, retired chairman of the math department at Frostburg State University, gave a detailed accounting of the city debt affected by the refinancing, and how the savings would accrue to the city. Asked what effect the market turmoil would have on the refinancing, or other aspects of the city’s fiscal state, the commissioner expressed a sentiment prevalent on Wall Street and around the globe.

“I don’t have a good feeling for that,” he said. “I really don’t.”

Last Updated on Saturday, 11 October 2008 18:51
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