With the original $18 million 2010 General Obligation Bond down to about $3.1 million, Lansdale Borough Administration and Finance Committee has recommended an additional $10 million in bank-qualified borrowing to cover $11.5 million in infrastructure improvements.
Committee Chairman Dan Dunigan informed council this month that a vote would be coming in December on the proposed borrowing. The committee was working on advice from the bond counsel and financial advisor of Boenning & Scattergood.
Dunigan said the original $18 million included $9 million in refinancing and $9 million in new funds.
"We have on our list about $11.5 million in capital projects to be done or that will be done shortly. We have roughly $10 million of available funds, which leaves, about $20 million unfunded," Dunigan said. "This borrowing going forward is taking advantage of a 45-year low in borrowing costs. The last time rates were this low, Lyndon B. Johnson was president."
To further elaborate, Dunigan said the borough's five-year capital plan stretched out to $42 million worth of projects to plan for down the line.
Taking the $11.5 million out of the $42 million, leaves around $30 million. Of that, take out the $10 million of what the borough borrowed for, leaving $20 million of unfunded planned projects.
"It gives us the flexibility to borrow now, take care of a big hunk of that and address other portions of it as we go forward," he said.
Dunigan said a bank-qualified loan allows the borough to take advantage of the marketplace.
"There are buyers for it," he said. "Being bank qualified, that results in lower costs and results in about $460,000 on a net present value of savings on interest. In actual dollars, it's more like $814,000."
Dunigan said there are certain parameters with bank-qualified borrowing. As long as the borough caps borrowing at a maximum $10 million, it can do it every fiscal year if it needed to. Banks, he said, purchase the debt and offset interest cost, which drives borrowing costs down.
"If you borrow at $11 million, we'd be on a full open market and there are added interest costs," he said. "It's proper planning of long-term borrowing."
Dunigan said another advantage: if Lansdale needs to call on the bonds, it can do so in half the time of traditional borrowing.
"It can be structured in such a fashion to have a zero budget impact for 2013," Dunigan said.
Dunigan said the committee will have to "plan for it for 2014."
As far as ongoing debt service, a number of $1.6 million is small, when kept in context of a $35 million budget.
"Going forward, to do the borrowing, it will take us closer to $2 million (in debt service)," he said. "Part of what we're doing is wrapping the funding around on the back end."
Dunigan said the borrowing is "extremely advantageous" for Lansdale Borough, given its plan to operate as best as it can in the most businesslike fashion.
"You recall, a couple years ago, I said, if I had a 94 percent chance of getting hit by a bus, I wouldn't cross the street. That 94 percent is now 99 percent. Still don't cross the street," Dunigan said.
As far as the infrastructure the bond could fund, Dunigan said it runs the gamut from roads and sewer upgrades to transformers, heavy equipment and buildings.
"What do we look to fund? Things that have a useful life of anywhere between five and 25 years," he said.