Washtenaw County commissioners have given final approval to a new way to pay off debt incurred from bonding, typically for public works projects in local municipalities. The vote occurred at the county board’s Oct. 2, 2013 meeting, following initial approval on Sept. 18.
The change will allow local units of government to repay bonds early – via the county’s delinquent tax revolving fund (DTRF), which is administered by the county treasurer. The intent is to reduce interest rate payments while posing no financial risk to the county, according to a staff memo.
The maximum amount of the advance would be $1 million, with a term of 10 years or less. The action would require approval by both the treasurer and the board of commissioners. Several other criteria for using a DTRF advance are proposed:
- The approval of an advance would be considered only for the county’s own indebtedness, and would result in a reduction in the County’s bonded indebtedness.
- The local unit receiving the benefit agrees to contribute at least 10% of the outstanding principal amount of the debt toward the reduction of the bonded debt and to amend its contractual agreement with the county to include a new payment schedule and new interest rate(s).
- A refunding bond analysis must be performed to examine the potential for savings by selling refunding bonds.
- The estimated cost of issuance for a refunding bond is 25% or greater than the estimated interest savings from the refunding bond sale.
- The local unit has a bond rating in the top two tiers of a standard rating service, or if the local unit is too small to warrant a rating, a review of recent financial reports of the local unit shows that they are not experiencing fiscal stress.
- The interest rate of the advance will be determined by the county treasurer and will exceed the rate of return received by the county treasurer in her/his pooled accounts.
- The amended contract with the local unit will provide a process by which the county treasurer can adjust the interest rate.
In a related resolution, commissioners gave final approval to restructuring debt held by Bridgewater Township. The township owes $585,000 on $1.095 million in bonds issued in 2004 to fund a sewer system. County treasurer Catherine McClary has agreed to loan the township money to pay off the bonds. The township will repay the treasurer’s office at a lower interest rate than it was paying for the bond debt, which was averaging 4.1%. The rate will provide a greater rate of return than the treasurer is currently getting on investments, according to a staff memo.
The amount of the advance from the treasurer’s office is $430,000, loaned to Bridgewater Township over nine years at a starting interest rate of 2%. The township will use an additional $172,000 to pay down the existing principal on its bond debt. The transaction will cost about $6,000 in legal fees, which the township will pay. [.pdf of staff memo on Bridgewater Township debt]
This brief was filed from the boardroom of the county administration building at 220 N. Main. A more detailed report will follow: [link]