On Monday, October 10, 2016, Milford City Council heard a presentation from Jamie Schlesinger, Director of PFM Financial Advisors, LLC, regarding the refinancing of Series AF-2011 bonds. The bonds are callable in January 2017 and Mr. Schlesinger explained that it was possible the City could save a significant amount of money by taking advantage of current low interest rates.
“Right now rates are low,” Mr. Schlesinger explained. “Think of it like your home mortgage. When rates drop lower than what you are paying, you refinance to get the lower rate. This is very similar. Right now, the rates on your bonds average around four percent. By refinancing, you can lower the rate and reduce the amount you will be required to repay.”
Mr. Schlesinger presented two options that were available to the City. The first option would have an upfront savings structure and would have an average rate of 2.75 percent, saving the City $664,689 over the life of the bonds which mature in 2027. Under this option, the City would receive the savings upfront and it could then be used for other large projects. The second option, which was a level savings structure, would yield $841,406 by the end of the bond life, but the savings would be spread over the next ten years and the City would only have approximately $40,000 per year to use for projects.
“If the City chooses to refinance the $8 million in bonds they have in this series, we would sell the bonds online,” Mr. Schlesinger said. “We use a site called PFM Auction and it is much like any other auction, except the lowest rate wins the bonds.” Councilwoman Katrina Wilson asked if there was any risk to selling the bonds online and Mr. Schlesinger explained there was no risk to the City and that this was the current method for selling municipal bonds.
According to Mr. Schlesinger, PFM Financial would handle the auction and refinancing so the City would not have to do so. All fees were included in the estimated savings as well, so the amount provided to council was the net amount after all fees were paid. Mr. Schlesinger explained that the actual savings received by the City would determine on the final interest rate after the auction.
Councilman Jamie Burk asked which option was preferred by Jeff Portmann, the Chief Financial Officer for the City and Eric Norenberg, City Manager, explained that Mr. Portmann referred the first option, even though the total savings was slightly lower.
“If we take the option where we get $600,000 up front, we can use that savings toward the Smart Meter Project,” Mr. Norenberg said. “Because these are sewer and electric bonds, the savings can only be used toward those types of projects.”
Council approved option one of the refunding project by unanimous vote.