The city took the next step Monday in securing up to $10 million in bonds to finance several stormwater sewer projects over the next few years.
The City Council unanimously approved an ordinance to authorize the sale of the general obligation bonds to pay for capital projects.
The council took the first step in the bond process at its May 15 meeting, giving the city permission to sign an underwriting engagement letter with Bernardi Securities. A representative of the firm was there to make a presentation and answer questions.
In April, residents voted by the narrowest of margins to double the city's local option sales tax, which will bring in an estimated $2.35 million a year for infrastructure upgrades. The city plans to use the sales tax money to make its bond payments.
The city will start collecting the extra tax in July, and the money should start coming in no later than November. Sterling residents' total sales tax rate will increase from 7.75 percent to 8.25 percent.
Using the bonds would allow the city to work its way down a lengthy project list at a much faster pace. City Manager Scott Shumard figures the city could pay on the $10 million issue for 4 years, and then bond out for more projects.
The city is looking at the prospect of rising interest rates in its rear-view mirror, which was a big consideration for the timing of a bond sale.
"Short-term interest rates have crept up, and long-term rates will follow, so we think it's wise to get the process going as soon as possible," Shumard said.
Interest rates went up in December and March, and Robert Vail of Bernardi Securities said two more rate hikes are expected this year.
Shumard said the city's current debt limit for general obligation bonds is about $14.6 million, and it has no general obligation debt on the books. Sterling's most recent credit rating from Standard and Poor's was A+.
Vail returned to Sterling for Monday's meeting. Alderman Jim Wise asked whether the state's long sequence of credit downgrades would affect the city's cost of borrowing.
"Yes, unfortunately it does impact municipal borrowing," Vail said. "It's called the 'Illinois penalty,' and it's already been factored into your numbers."
Vail said interest rates have dropped since his last visit, and even with the state-inflicted penalty, Sterling is looking at an interest rate under 3.5 percent for the bonds. There is a good chance, however, that the Federal Reserve Board will raise rates later this month.
The city plans to have a public hearing for the bonds at its June 19 council meeting.
Wise said city officials should meet soon to determine a schedule for when projects will start.
"I think it's important that if we dedicate 20 years to new debt, the public should know exactly what's being done and when," Wise said. "I also think it's important to make sure the projects are equally distributed throughout the city."
