The first part of the retreat, which was held at the theater, focused on refinancing the debt.
In a memo to council, City Manager Paul Sabiston noted the estimated early payoff of the building is approximately $21,500,000 while the present debt service is more than $1.7 million and fluctuates slightly each year. The city makes a large balloon payment each year, this July’s being $680,000.
Sabiston told council the theater payments are not a matter of simply paying back the bank. “We’re paying a bond issuance. It’s not like we can go to the bank and they can forgive this. It’s a little bit different than a straight loan.”
The best refinancing option, Sabiston said, appears to be a general obligation bond debt. “This would place the city’s property tax revenues as security for the new debt obligation and would require approval by the voters of a referendum on this issue,” Sabiston’s memo said.
The advantage of this structure would be a lower fixed interest rate, with early projections showing one of 3 percent to 3.5 percent. “Such a reduced interest rate amortized over 25 years could reduce the annual debt service from $1.7 million to $1.2 million to $1.4 million,” the memo said.
Sabiston told council while there would be much groundwork to do, “Bank of America says it’s worth pursuing. If you lower the annual payment by $300,000 to $500,000 that becomes a manageable amount.”
Coupling the general obligation bond with a sales tax increase could be better, the city manager told council.
Thus far, with a tight budget for the upcoming fiscal year, the city can make the debt payment, Sabiston said. “It’s going to be close. The year after that is going to be real lean. The year after that gets tight because we deplete the theater reserve.”
Mayor Emery Doughtie said council needs to ask the citizens what they would like to see. “I don’t want to see us in a position where we have to do something really, really drastic.”
Sabiston said the sales tax increase does not have to be a penny. “Between a half and one cent would be the minimum. If we refinance the general obligation bond and have a sales tax, that starts to be a pretty good picture for us. Our goal here is to have lower payments.”
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