Even with a competitive 3.354 percent net interest cost, the City of Bettendorf's latest $20.8 million general obligation bond issue will cost taxpayers more than $8 million in interest over the next 20 years.
The bond proceeds will be used to pay for capital improvement projects approved by the city council including $3 million for paving Forest Grove Road, $1.85 million for paving Hopewell Avenue, $1.55 million for repaving and widening of Utica Ridge Road, $1.4 million for new recreation trails along Crow Creek and Highway 67, $1.2 million for street reconstruction of portions of Summit Hills, Olympia Drive, Shadowbrook Drive, Central Avenue and Halcyon Drive, downtown and park improvements and a new roundabout at Middle and Crow Creek Road.
City Administrator Decker Ploehn and the city's bond counsel, Springsted, Inc., told city council members at Tuesday's (4/1) meeting they were very pleased the bidding attracted nine bond underwriting firms and that the interest rate from the low bidder was within a thousandth of what the bond consul had been expecting prior to the city's recent downgrade by Moody's Investor Service.
BMO Capital Markets of Chicago was awarded the bond underwriting with a net interest cost of 3.3536311 percent and a bond premium of $670,000. Total interest to be paid by the city over the 20-year life of the bonds is $8,119,504. With the bond permium, the city will receive $20.8 million in proceeds to spend on capital improvements rather than the $20.17 million initially planned.
Another reason for the high number of bids is the fall off in municipal bonds issues nationwide. For the first quarter, municipal bonds issues were down nearly 25 percent compared to the first quarter of 2013.
CLICK HERE to view the bond bid compilation prepared by Springsted.
The downgrade by Moody's, from Aa1 to Aa2, came only a week before the bond auction. One of the primary reasons for the downgrade by Moody's was the city's high debt level. With the new bonds, the city's total debt will exceed $133 million, or nearly 86 percent of the debt margin allowed by state law and the highest among major cities in the state.
In the fiscal 2011-12 budget, the city projected the debt margin would peak at 75 percent and decline to 73 percent of the state-imposed limit in fiscal 2012-13. Now, city officials say it will be fiscal 2018-19 before debt levels are reduced to that level.
Ploehn reminded aldermen the capital improvements and debt to finance the projects were in accordance with the council's five-year plan and the growing debt for paying for capital improvements in the city is necessitated by the city's continued growth.
