The City of Milton Common Council authorized Nov. 4 the borrowing of $1.65 million to fund the purchase of 55 acres along Putman Parkway. Money to pay for the borrowing will come from Tax Incremental Financing District (TID) No. 9 and a new TID No. 11, which, according to Finance Director Dan Nelson, is in the process of being created.
Council approved the execution of an offer to purchase the land during its meeting held Oct. 20.
In a separate action, council approved the authorization of $900,000 in advances, or loans, to TID No. 10 from the city’s general, water, and sewer funds to defease $1.22 million in debt held within the TID as a portion of 2020 refunding bonds.
Loan and funding mechanismsBoth in a memo and through a presentation, Nelson outlined funding mechanisms, which City Administrator Al Hulick said, were in keeping with the city’s goal of funding the land acquisition through “non-levy funded revenue sources.”
In his presentation, Nelson outlined the city’s general obligation (GO) debt, which is as follows: $5,175,000 in 2016 bonds, $2,800,000 in 2020 refunding bonds, 1,220,000 in 2020 refunding bonds (TID No. 10 portion), $1,650,000 in new 2020 bank notes (to purchase the Putman Parkway land), $305,000 in 2013A bonds and $105,000 in 2011B bonds, for a total of $11,255,000.
Subtracting the payoff of the TID No. 10 portion of debt ($1,220,000), Nelson said, the outstanding debt calculated forward to Dec. 31, is $10,035,000.
The city’s legal debt limit is $22,750,895.
Subtracting the debt as calculated through Dec. 31, Nelson said, the city would have an available debt capacity of $12,715,895, and a margin of indebtedness of 44.11%.
The GO debt calculations do not account for any outstanding city-held, non-general obligation debt, Nelson wrote in his memo.
With the approval of the new borrowing and the TID No. 10 early payoff, Nelson said, the city would be under the 50% margin of indebtedness, which he said, had not been the case since at least 2002.
Outlining the conditions of the $1.65 million loan, Nelson said two banks, First Community Bank of Milton and the Bank of Milton, would each lend the city $825,000 at an interest rate of 2.25%.
Loan proceeds would be received by the city on Dec. 31.
In August, 2021, Nelson said, the city would make its first interest payment and in February, 2022, a first principal payment would come due. A schedule of payments shows the full debt retiring in February of 2030.
Next steps to be completed by council, Nelson said, would include presentation of a borrowing resolution and bank notes for approval sometime in December.
TID No. 10 debt payoffIn a second presentation, Nelson said, since March, “the investment opportunities that are available to local governments are still available, but the rates are clearly not favorable.”
In April, he said, the city looked at available funding tools to refund outstanding amounts on 2011B and 2013A bonds, noting: “The current municipal investment environment has decimated interest rates, making it impractical to renew expired and expiring investments at the current market rates.”
Looking for alternatives methods of investment, Nelson said, staff concluded that $900,000 could be advanced, or loaned, from the general, water, and sewer funds to pay off $1.22 million in GO debt in TID No. 10. The TID would repay the three funds with 1.00% interest between 2021 and 2025, he said.
In a memo to council, Nelson wrote: “Assuming no new major developments in TID No. 10, this would stabilize the TID financially by the end of 2025. In addition, this TID would eliminate all of its non-development obligations three years sooner.”
The TID would save approximately $130,000 in scheduled interest payments while paying $20,000 in interest to the city’s three funds, Nelson wrote, for a net savings of $110,000.
“These advances to TID No. 10 will act in a similar manner as a four-year CD would for the general, water, and sewer funds that ‘mature’ in annual installments. The proposed $900,000 is less than is normally invested in CDs or other term investments. Staff does not foresee this impacting cash flows of any of the three funds,” Nelson wrote.
Council authorized advancing the $900,000 to TID No. 10. Nelson said he would bring forward at council’s next meeting a resolution authorizing the payoff of the $1.22 million bond, with that payoff occurring sometime in mid-December.