The city of Jackson is refinancing $24 million in general obligation bonds in order to take advantage of historically low-interest rates.
The refinancing of general obligation bonds, which are municipal bonds backed solely by the credit and taxing power of the issuing jurisdiction rather than the revenue from a given project, is projected to save taxpayers about $10 million over three fiscal years, starting in fiscal year 2022.
The refinancing is good news for the city because it evens out its general obligation bond payments, which makes it easier to budget and doesn’t create a strain on the budget like what happens when a payment increases substantially, said Robert Blaine, Ph.D., chief administrative officer for the city of Jackson. (He will begin work on February 1 for the National League of Cities, the nation’s largest membership and advocacy organization for local elected officials, as the director of the league’s Institute for Youth, Education and Families.)
“It allows the city to be able to better manage its finances and to be able to plan, to do multi-year planning as far as the budget is concerned,” he said. “We’ll know where those funds will come from to make debt service and that will help take the strain out of our enterprise.”
The more than $3 million that the refinance will free up annually for fiscal years 2022-2024 would be helpful should the city face revenue shortfalls, Blaine said.
“It doesn’t mean there’s extra money to do a lot of new things but in a situation where we would have to dig into the reserves, it gives the city more to meet its obligations,” he said.
The savings from the refinancing will go into the general fund. The dramatic drop in bond payments that was expected in fiscal year 2025 will not happen because of the refinancing.
Jackson has about $107.7 million in general obligation debt, of which $13.5 million is to be paid during the 2021 fiscal year.
The city’s general obligation debt service has increased through the years from
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$4.9 million in fiscal year 2016 to $13.4 million for fiscal year 2021.
Under the restructured plan, Jackson’s 2022 general obligation bond payment will be reduced from $13.5 million to $10.4 million. In 2023, the payment will drop from $13.6 million to $10.3 million, and in 2024, the payment will drop from $13.7 million to $9.9 million.
In 2025 and 2026, payments will stay in the $9 million range, dropping to just under $8.8 million in 2027 and $8.4 million in 2028.
Bond payments will dip below $8 million for the first time in 2029 when debt service that year will hit $7.9 million.
Jackson City Council member Virgi Lindsay, who represents Ward 7 and chairs the council’s finance committee, said the $3 million that will be added to the general operating budget for fiscal years 2022-2024 is good news when it comes to providing city services.
The city’s payments will be more manageable plus funds will be available that the city council and administration will determine the best way to use, she said. It all adds up to “better management of our resources,” she said.
The refinancing provided debt service relief, created a decreasing debt service structure and kept the maturity of the city’s general obligation bonds the same, she said. All of the city’s general obligation bonds mature by 2036.
The city wanted to refinance the bonds about a year ago, but the onset of the coronavirus pandemic meant waiting until the market stabilized, she said.
Lindsay praised Tim Howard, the city attorney, and others, including Stephen C. Edds, an attorney at Butler Snow, who handled details. Butler Snow served as bond counsel and Siebert Williams Shank & Co. served as bond underwriter.
“I’m grateful to the team that made this possible,” she said.
City Council member Ashby Foote, who represents Ward 7, agreed that the refinancing is “a good and smart thing to do at this time. It will help us a lot in the next three years.”
Foote said the refinancing will provide breathing room to deal with the city’s water/sewer billing situation. The city needs the additional cash as it continues to sort out problems in its water billing department. Because of complications with its billing system, the city is receiving about $2 million a month less than it should be collecting from monthly water/sewer bills.
Before the council voted to approve the bond refinancing, members discussed what should be done with the savings, naming increased constituent services as possibilities. Ideas ranged from paying off additional debt to Mayor Chokwe Antar Lumumba’s mention of facilities for youth.