City retires debt 10.5 years ahead of schedule
City of West Chicago customers will be the beneficiaries of substantial savings as a result of the creative and strategic financial planning on the part of the Department of Administrative Services staff and the leadership of Mayor Michael Kwasman.
On April 8, 2011, documents were filed to place a 30-day notice to fully call the bonds that were issued by the City in 2002 to fund the construction of the water treatment plant. By calling the bonds and then disbursing full payment on May 10, 2011, the City will realize a savings of over $4.3 million as a result of the debt being retired 10.5 years prior to its scheduled maturity.
For the past year, independent financial advisory firms have pressed the City to refinance the debt in order to take advantage of interest rates that have declined since the time the bonds were originally issued. While the firms' proposed savings approached $1 million, the savings of more than $4.3 million from retiring the debt far exceeds that of refinancing the bonds.
Additionally, by not refinancing the bonds and, alternatively, calling the bonds and paying them in full, the City will not incur the costly administrative and legal expenses approximating $169,000, as proposed to the City by the broker/underwriting firm that sought to refinance the bonds.
This astute financial strategy allows the City to conceptually pay itself in this low-interest earning environment, a responsible alternative to paying the significantly higher interest rates being charged in the municipal bond refinancing market. Recognizing the short-sightedness of the broker/underwriting firms which repeatedly solicited the City, staff chose to think outside of the box and develop a much more effective solution that would reap considerable long-term savings to the customers.
Mayor Kwasman indicated that he was elated when he heard the amount of savings anticipated. “I am very proud that our staff didn't jump on the traditional route of debt refinancing, but rather took the time necessary to develop and analyze an alternate approach to realizing significant interest savings on the bonds. The true winners in this scenario are our customers, who will now benefit from stable water rates over the mid-term.”
West Chicago staff indicates that the City's aggressive road resurfacing program and improvements to the wastewater treatment plant will continue and are not impacted by this bond payoff.
“At a time when the taxpayers are being stretched by higher levels of government and they are demanding accountability and responsibility from their government leaders, the City chose to cut interest expenses, thereby delaying non-essential water and sewer infrastructure projects” added Mayor Kwasman. The City Council will amend its budget next quarter to reflect this payoff, which according to Mayor Kwasman, should be a “no-brainer, unanimous decision”.