JACKSON’S debt could soon lead to a better water and sewer billing service. The city is now negotiating a swap transaction, a move that, if approved, will generate about $10 million the city can use for capital improvements.

A swap will allow the city to refinance two of its water and sewer bonds for a lower interest rate, and is a common practice among cities, counties and other large entities.

Finance Director Rick Hill said he’s going to recommend, if the transaction is approved, that a portion of the funds be set aside to upgrade the city’s aged water and sewer billing system - a move that he said would benefit residents and municipal leaders alike.

The system that’s in place now has been a point of frustration with Northsiders and city officials for years. Hill said updating the antiquated system would help officials better manage water accounts and help reduce the number of customer complaints the city receives about their bills.

Public Works Director Thelman Boyd said having a new system will make it easier for residents to make payments. “We want a system that will allow customers to make online payments and allow us to bill more services through the system,” he said.

The current system was built in-house in 1976 and frequently crashes, costing the city time and money. “It goes down so often and causes us to lose accounts,” Boyd said. “You’ve heard the stories where some residents haven’t been billed in over a year.”

UPGRADES would also allow the city to keep water rates low. Boyd said to make up for lost accounts, the city has to charge higher rates.

Hill said a new system would allow the city to bill residents once a month, cutting down the amount residents owe at one time, and allow the city to better manage their accounts and collect fees.

But the thoughts of better water and sewer billing services could all be for naught if the capital city doesn’t agree to the transaction that would exchange interest rates on about $128 million in debt.

The city hopes to swap the fixed interest rate of 4.99 percent for a lower rate on two water and sewer bonds issued in 2002 and 2004.

Officials are now negotiating the terms of the agreement with Duetsche Bank and Rice Financial Products, the two banks that will actually conduct the rate swap.

The city has brought on Sterne Agee and Leach Inc., a national investment firm with an office in Jackson, to serve as its financial advisor, as well as two local law firms - Baker Donelson Bearman Caldwell and Berkowitz, and Anthony Simon - to serve as legal counsel for the transaction.

In the transaction, the city would hire an underwriter to issue new bonds with variable-rate interest to pay off its current debt. Duetsche and Rice would take those bonds and exchange them with an investor for bonds with a lower fixed interest rate.

If a lower interest rate isn’t found, the bank would wait a year and try again.

The transaction would save the city between $10 million and $13 million in interest payments over the life of the bond, money that will be paid to the city up front if the city agrees to the deal. Hill said the transactions wouldn’t occur until 2012 and 2014.

HILL SAID the city can do this because investors search for different types of debt to boost their portfolios.

Despite the benefits of the transaction, there are a number of risks the city has to consider. “Right now, the markets are in such a shape that investors might not want to buy variable-rate debt,” he said. In that case, the city would have to re-pay the up front money.

The city would also have to pay the money back if the city’s water and sewer fell below a certain rating, a move that could be prevented if Jackson’s billing system is upgraded, Boyd said.

Two firms, Standard and Poor’s and Moody’s, provide the rating based on several factors. Hill said both risks are relatively small. The Jackson City Council voted to enter into a swap agreement with a different bank last year, but the transaction fell apart because of stock market conditions.

As a result, the city had to enter into negotiations with the German-based Duetsche and Rice for a new agreement.

While some say the swap would be beneficial for the municipality, the two council members representing the Northside have their doubts. Margaret Barrett-Simon, Ward Seven, and Jeff Weill, Ward One, both voted against the decision to enter into a swap agreement last November.

Barrett-Simon said the risks involved with the deal are too great to take on. She said the city can definitely use $10 million, but she wants to know more information before entering into the transaction.

DURING several council work sessions where the matter was discussed, Weill and Barrett-Simon asked representatives of Sterne Agee a number of questions about the transaction, but got little information to show for it.

“I figured out that no one really understands it,” she said. She feels that some of the people involved will not give an honest opinion because they have too much to lose if the deal falls through.

Weill asked officials with Sterne Agee on several occasions about the cost of the transaction and could never get a straight answer. Price estimates have ranged from a little more than $1.3 million to roughly $2.5 million.