The Morristown City Council on Tuesday approved a $69 million bond issue that will be issued at a fixed interest rate – rather than the current variable rate.
City Center’s share of the 25-year bond issue will approximate $21 million, $11 million of existing debt and more than $9 million in new debt, according to Chris Bessler, senior vice president of Cumberland Securities, the city government’s financial Adviser.
MUS’s share of the bond issue is about $48 million, $33 million of existing debt, most of which is sewer-related obligations and approximately $15 million in new debt, according to Bessler, who says the bonds will be sold at auction involving large financial institutions this fall.
City council must authorize MUS debt issues, and city government is ultimately responsible for utility debt.
The issue didn’t pass without some changes in the final hours. Council member Kay Senter provided nine proposed changes at a pre-meeting conference.
Councilmembers unanimously approved modifications that provide that Cumberland Securities is retained as a financial Adviser only for this bond issue – instead of being retained as a financial Adviser in perpetuity – and that council must approved fees paid to Bessler.
Morristown Mayor Gary Chesney says he views the contract modifications as mostly meaningless since council must approve the terms of the bond issue and the contract with Cumberland Securities. Chesney says it’s up to the city administrator to provide a recommendation, and then council votes up or down on the proposal.
“If there was something in the recommendation that council or individual councilmembers didn’t like, it can be raised at that time,” Chesney said this morning. “A majority of councilmembers will decide, but we apparently have a couple of councilmembers who want to move that authority away from the city administrator.”
Senter said she was fulfilling her duty as a councilmember.
“Councilmembers have a fiduciary responsibility to our citizens, and are charged with oversight of city matters,” Senter said. “I do not see the amendments I proposed to the contract with Cumberland Securities taking authority away from the city administrator. My purpose is to ensure that council is involved in the decision and that there is transparency in any decisions.”
Council member Tommy Pedigo added he’s not trying to “micromanage” city administrative staff.
“That’s the farthest from the truth,” Pedigo said this morning. “The point I was making last night was when it comes to $100 million loan that the city has been asked to contract with, all I asked were what are the fees; what are the terms; and how much money we were borrowing? All I understood is ‘pass this resolution and we’ll find out later.’ I’m not doing that.”
What no councilmember questions is the decision to move from a variable interest rate to a fixed interest rate is the right decision at the right time for the right reason. The Morristown Utility Commission and the Morristown City Council are of one mind that interest rates are trending upward, and it’s prudent to lock in a fixed rate at this time.
Together, city government and MUS have a combined debt of $151 million. Currently, the debt is split roughly evenly split between variable and fixed-rate debt. Bessler says the new split will be 19 percent variable rate and 81 percent fixed-rate debt, which would tend to raise city government’s credit rating.
Another proposal Senter advanced was for Larry Clark, assistant city administrator who is a certified municipal finance officer, to provide some services being reserved for Bessler. City administrative staff members say Senter’s proposal would violate federal law.
Bessler is certified by the Securities and Exchange Commission, which authorizes him to offer a type of financial advice that Clark cannot legally offer.
The financial Adviser says bond issues of this magnitude draw the interest of the country’s largest financial institutions, making a highly competitive auction more likely. Bessler says that based on the current market conditions, he expects a 25-year fixed rate of about 3.2 percent, which includes his fee.
The variable rate that city government has been paying is approaching 2 percent, according to city officials.