As the delay to decide on a debt restructuring plan continues, Mayor Erin E. Stewart said interests rates have risen causing increased costs of $1.9 million.
Since the initial debt restructuring meeting interest rates have increased several times.
On Jan. 10 the 10-year treasury rate was at 2.56 percent. On Feb. 2 it went up to 2.72 percent and on Feb. 6 it increased to 2.83 percent. It amounts to about $1.9 million more to do the debt restructuring as of Wednesday than if it were approved in January.
“We are in a rising rate environment and very quickly. The deal is costing us more. A lot of it are policy changes coming from Washington. There is a Trump effect on our ability to restructure our debt,” said Stewart. “$1.9 million is no joke. That is costs we have to bear to make the deal work.”
Richard Thivierge from Mesirow Financial Services, the City’s financial advisor, sent Councilmen a letter on the importance of doing the deal quickly as rates are on the way up.
“We have been very responsive to answering questions asked by Council members. There was a lot of great questions, but dialogue has kind of died off,” said Stewart. “We are not hearing much and it makes me very concerned.”
Stewart said this cannot wait until June to be done.
“We have to have this established before we get into the budget,” said Stewart. “You are undermining the entire budget process by not fixing that cost. The debt service line item is the one line item that is non-negotiable. It is an obligation that has to be met or the City is going to be in default to its bond holders. We can’t just pay what we can afford. We do not have that choice. It important to have a meeting and have it soon and have a decision made. We know we cannot afford payments down the road.”
One debt payment cost more than the City operating budget.
“It is scary and it is not a time to play games,” Stewart added. “This is a dangerous line to walk up against and residents and taxpayers are the ones who will suffer. There will be a lot of costs that we can’t afford. We cannot cut enough without impacting level of services to impact that cost.”
The last two planned debt restructuring meetings never discussed the issue. During one the Democrats tried to cancel the meeting. Republicans held it anyway. In the second one, only issues regarding the canceling and legality of the first meeting was discussed.
This debt restructuring has been in the works for several years, but in order to restructure that debt, the City waited for the State to pass a law to allow for municipalities to issue debt for longer than 20 years. The restructuring would lower the city’s maximum annual debt service payment from about $40 million to about $25 million this year while adding an additional 10 years of payments.
If the restructuring is not done, then next year cost of bonds increases to $29.188 million. The following year the city would owe $36.373 million. In 2021 the debt bill would be $39.357 million.
During a Jan.10 meeting Democratic Councilman Carlo Carlozzi said, “I want to be sure the decision I make is best for the residents of the City who do not have the opportunity and have to look to see what they have to cut. We have a borrowing issue and we have a spending issue.”
(See page 3 for more views on debt restructuring.)