MOUNT VERNON — The financial picture of how Mount Vernon will pay for its new police station is becoming clearer.
In December, city council adopted a resolution that enables Mount Vernon to be reimbursed for up to $25 million in upfront expenses. The $25 million covers estimated construction costs.
However, “soft” costs such as furniture, fixtures, and equipment are in addition to the $25 million.
On Monday, council members began the process to issue up to $29 million in notes or bonds to cover both costs.
Andrew Brossart of Bradley Payne, the city’s municipal advisor, said there are three ways the city can finance a project:
•Cash
•One-year note
•Bonds
He recommends a one-year note, stating it’s common for construction projects.
“It gives you the ability to get cash in quickly, and it gives you the lowest form of interest rate, generally. That is the case today as well,” he said.
When the note becomes due in a year, the city could either re-issue another one-year note or switch over to issuing bonds.
Brossart said the risk associated with a bond vs. a one-year note is the market rate.
For example, in 2020, interest rates were around 4.7 percent and rose to 5 percent over the next few years.
“They’ve been slowly coming back down. So, in today’s market, when we look at what the interest rate may be for this borrowing, we’re probably in about the 4-percent range,” he said.
With a bond, the city is locked in for the full term and cannot adjust the rate.
Brossart said that when the city switches to bonds, it can structure them so the city can recall them in seven years, giving it the ability to refinance at lower rates.
How much will the city borrow and when?
The legislation authorizes up to $29 million.
However, administration officials do not yet know the specific amount.
Corna Kokosing is the CMAR (construction manager at risk) for the project. Under a CMAR arrangement, Corna Kokosing will give the city a guaranteed maximum price.
“Once accepted, we will use that number to go out to bid and issue a note for the project,” Safety-Service Director Tanner Salyers said.
While the city will receive the money in a lump sum, it will not spend it all at once. The city will invest the money and draw it out as needed.
“I think what you’ll find in this market is you’ll probably earn about as much as you would pay in interest in the first year and as it slowly comes down,” Brossart said.
Interest payments to note holders will not hurt the city’s bond limit. The city will pay off several loans over the next five years, including:
•Mount Vernon Avenue bridge project (2027).
•Blackjack Road project (2029).
•OPWC loans for the Vernonview/Wooster Road and South Gay Street projects (2030).
Regarding the amount of debt acceptable to a rating agency, Brossart said agencies evaluate the status of essential funds.
“That would be the general fund and then the other funds, police, fire, and all those that kind of merge together,” he explained.
“You generally don’t want to see that go over 9 percent for a community your size of what your expenditures are. We’re below that range, and we want to make sure we stay in that realm going forward.”
Law Director Rob Broeren said the bonds issued for the water meter upgrades do not affect the city’s bond limit because that debt is paid through user fees.
Further discussion scheduled
Councilman James Mahan, chair of the Finance and Budget Committee, plans to take the legislation to its third reading.
He also scheduled another committee meeting for March 9.
Salyers noted that an updated version of the legislation will remove a section discussing OMAP (Ohio Market Access Program). The city does not plan to use that program.
Mahan sought clarification on Sections 7 and 8, which mention a property tax (debt service levy) to fund the bond interest.
Salyers said that according to the city’s legal firm Bricker Grayden, the legal language is “the backstop of levying an inside or unvoted, village levy if necessary to pay the debt service on the bonds.”
“We don’t expect to need those sections, but they give the notes the security/classification as limited tax, general obligation debt, which is very secure,” he said.
“We expect the income tax receipts and/or other revenues to provide the funds necessary to repay the bonds, but no inside millage will be necessary.”
(Below is the ordinance authorizing the city to issue up to $29 million in notes.)