City expects $500,000 in savings from bond refinance
The city expects to save more than a half-million dollars by refinancing $17 million in city bonds.
The Board of Aldermen voted at its November meeting to allow the mayor and finance director to refinance the debt.
According to Finance Director Peter Erodici, the city has a total of about $130 million in total bonded debt. The city pays about $13 million a year on that, which includes about $9 million in principal and $4 million in interest. Much of that debt was incurred to pay for sewer, school and public improvements, city officials said.
The anticipated saving are over the life of the loans.
Erodici said most of the city’s bonds that are eligible for refinancing have been refinanced, and he said those earlier sales have already saved the city more than $4 million.
The latest refinancing will take place in the next couple of months.
Responding to a question from Alderman Dan German, Erodici said it was too early to say what the interest rates will be because rates fluctuate daily. But Erodici said he expected the new rates to be around 2.5% to 3%. Currently the interest rates average 3.5%, with some higher and some lower.
Alderman Nick Veccharelli, speaking in favor of the refinance, said, “I’m very happy you guys are digging in and saving taxpayers a tremendous amount of money by doing this.”
Mayor Ben Blake said it’s a good time to refinance debt because the city just finished going through a bond rating agency review, following which the city’s triple A bond rating was reaffirmed by the bond rating agency Fitch.
“The creditworthiness of Milford is very well respected, so we get good rates,” Blake said.
Alderman Ray Vitali asked if the city has historic data showing the correlation between its bond rating and the interest rates it receives when it refinances. The finance director did not have that data available, though he said it likely exists.
“But it goes without saying that if our rating was lower than AAA, it’s almost certain we’d be paying a higher interest rate,” Erodici said.
The mayor discussed the city’s bond rating in July when he presented his annual state of the city address. He pointed out that Milford’s bond rating had been raised to AAA, the highest score possible, and said the city is undergoing an “economic renaissance,” with new businesses moving into the city and existing businesses growing. All this means the city’s grand list will rise, and taxes will go down, he said.
In early 2016 the mayor announced that the city would capture $893,536 in taxpayer savings by refinancing $16 million in bonds on a day when interest rates for municipal bonds were at record low levels, and demand for Milford bonds was high.
He said the city got a very favorable 1.96% net interest rate on bonds originally financed at an average rate of 3.7%.
In addition to the tax relief from the 2016 bond refunding, the city realized savings of approximately $3.9 million in the few years prior to that from four refunding issues, Blake said.