Crossville, Tenn., seeks higher bond rating
The city of Crossville, Tenn., wants to save on interest costs on approximately $28.1 million in debt.
The council approved a resolution authorizing loans during its Dec. 10 meeting; however, the resolution doesn't obligate the city to refinance any of its debt. Instead, it serves as another step in determining the city's credit rating.
"We're already a AA-minus. This is just trying to get us just a little bit better rating," city finance director Fred Houston told the council during November's audit committee meeting, held at 5:15 p.m. prior to the monthly city council meeting.
S&P Global, a financial services company, administers one of three major credit rating companies. It rates governments and public and private corporations for credit worthiness from a high of AAA to a low of D.
Larry Kidwell, president of Kidwell and Company, presented information on the city's debt during the September council work session.
"You have a very low amount of debt compared to the net capital and total assets that you have. That's a lot of good financial management over a long period of time," Kidwell said.
The city has approximately $28.1 million in debt, which includes:
- $4.3 million tax-exempt general obligation refunding bonds
- $2.55 million taxable general obligation refunding bonds
- $21.25 million water and sewer tax and revenue funding bonds
Kidwell said the city has a strong cash balance, which credit agencies like to see.
The last time the city went to the bond market, it was "on the margin" of an upgrade in 2014.
"The next time you're on the bond market, you're a very strong candidate for an upgrade," he said.
Kidwell proposed refinancing the city's debt with an estimated $750,000 savings on interest costs over the loan. But Houston told the council in November the cost of the new loans would be about $400,000, providing about $350,000 in savings.
Houston explained it was a long process to reach the bond market, and the resolution the city approved was "just another step on the ladder."
Houston said the city currently pays about 2% on its debt, with scheduled increases up to 3%. Another option for new financing is through the Tennessee Municipal Bond Fund, which offers variable rates currently at 2%.
"At any point in time, if we decide we don't want to sell bonds, we can still go to the TMBF," he said. "Just in case you want to think about it at one point, we can always say no right at the end."
Councilman Scot Shanks asked what the savings would be between the city's current credit rating of AA- and a AA or AAA rating.
Councilman J.H. Graham III said, "We could get a AA rating."
But the city wouldn't know the benefit of an improved rating until the day the bonds sold.
If the city decided not to sell bonds, it would still have to pay approximately $18,000 in fees to the credit rating agency.
The resolution was approved as part of the council's consent agenda at the Dec. 10 meeting.
The council also voted to move forward with State Revolving Fund financing for a water line and sewer line projects to Meadow Park Lake.
The council had previously directed city staff to "shop" the project to both the SRF and USDA Rural Development to determine the most competitive financing option.
The sewer line project is estimated at $988,000 and the water line at $960,000.
SRF offers terms of 20, 25 and 30 years with interest rates of .66% to .75%, depending on the loan term. It also offers principal forgiveness of 25% for water projects and 15% for wastewater projects.
Rural Development offers a term of 38 years with interest rates of 1.75% to 3%. Grants of 25% to 35% are possible, though the memo on the funding options says the sewer line would likely not be eligible. Rural Development also requires completing an environmental assessment and full engineering preliminary report.
The council also approved releasing the securities Bank of Putnam County pledges to secure the city's funds. These securities would cover the city's deposits above the FDIC limit of $250,000 per depositor.
Bank of Putnam County has recently joined the Tennessee Collateral Pool, which will secure the city's bunds. The bank requested the release of the securities.