Township Manager Larry Gregan Monday night laid out the township’s plan on how it’s going to potentially pay for a project that the township estimates will cost $9.65 million.
First, it will borrow $5.3 million in bonds, at a 2.5 percent interest rate, for 30 years.
Second, it will look to finance a 2012 open space loan of $5.5 million at a locked-in 2.5 percent interest rate for 30 years.
The township will soon begin talks with Standard & Poor to boost its bond rating from AA+ to AAA.
“We are looking to take advantage of the all-time historic lows in the municipal bond market. (Market rates for bonds for AAA and AA rates) dropped in half — an average of 4.6 to 4.9 percent — from January 2011 to November 2012,” Gregan said. “At this point, we’re about 2.47 to 2.67 percent … between AAA and AA. Our rate would be somewhere in the middle.”
Gregan said the township’s AA+ bond rate is 2.5 percent, as of Dec. 6.
The township also plans to spend $617,000 from the debt service reserve fund to “bridge the gap between the annual debt payment and annual tax revenues.”
“We would be able to fund this project for approximately 21 years without any need for additional tax support,” Gregan said.
The township will spend about $4.3 million in capital reserve funds too, which are earmarked for parks and recreation opportunities. These funds will pay for building design costs and personnel costs.
Bond payments are scheduled at level annual payments over the life of the bonds.
“We can rely on the debt service millage rate of 2.4 mills to pay that debt service, without looking for additional revenues, in order to pay for the debt service,” Gregan said.
He said the township can fund it for 21 years without an increase, due to its solid tax base and its low debt rate of $670,000.
He also said a AAA rating will give the township an interest rate as much as .15 percent lower, to offset the debt service obligation for more than 21 years.
Architect Kimmel Bogrette estimated the construction cost is around $9,952,000 — that includes hard costs of about $7.8 million, soft costs of $1.4 million and contigencies of $752,000.
The township estimates its own cost at $9.6 million, without contingencies.
Estimated annual expenses at such a facility: $979,055.
Estimated annual revenues: $865,046.
That leaves a recovery rate of 88 percent.
Resident Bob Sykes wanted to know where the remaining 12 percent would come from — and hoped it wasn't from the residents.
"I assume this 12 percent would come out of special events, but you can't really anticipate until the facility is open. That deficit between the actual income for operations and the actual income itself, I hope it would not be turned over to taxpayers. I don't know where else it would come from."
The township also took another route to financing the project in a unanimous vote Monday — the submission of a Pennsylvania General Assembly capital budget request for $5 million.
If awarded, the township would provide a 50 percent match.
Assistant Township Manager Stacy Crandell — newly promoted from public information officer — said the grant funding is earmarked for redevelopment assistance for the acquisition or construction of economical, cultural or civic improvement projects. The submission was made to the office of State Sen. Stewart Greenleaf.
"Every two years, the Pennsylvania General Assembly develops develops a capital budget bill, which provides an opportunity for local governments to submit capital budget requests for future funding by the governor's office," Crandell said.
Crandell said a project must first be approved by legistlative authorization in a capital budget bill, which is signed into law.
The total cost for the grant project must be at least $1 million, she said.
"The township would have to provide a 50 percent match. Any project that receives funding requires a payment of prevailing wage rates," Crandell said. "This is a reimbursement-based grant program, which requires the township pay the expense and then submit it to the budget office for reimbursement."
Crandall said the budget request is in line with other projects that have received authorization and funding in previous state capital budget bills.
"It can't hurt," said Chimera.