By a unanimous 7-0 vote Monday, the Falls Church City Council authorized the sale ahead of its original schedule of all the remaining bonds it’s approved to cover a total of $126 million in capital improvements in an effort to take advantage of uncommonly low interest rates now. The move, according to the City’s Chief Financial Officer Kiran Bawa, will save the City $10 million in debt service over the 30 year repayment terms over its earlier projection.
The new policy authorizes the sale of all the remaining bonds in early November, instead of in two tranches extended over the coming year. While some on the Council expressed concern for the risk the move entails, they concurred that taking advantage of record low interest rates now was prudent, in fact, as Council member David Snyder said, the Council could be faulted for failing to take advantage of the situation now.
The bond sale, totalling $126,825,000 of which $20 million has already been sold, which citizens of Falls Church approved by a wide margin in a November 2017 referendum, will fund the construction of a new George Mason High School campus, already begun, the renovation and expansion of the Mary Riley Styles Public Library, the City Hall expansion and renovation, sewer and stormwater mitigation improvements and a plethora of other capital programs.
The October sale would also include $20 million to pay off the earlier general obligation.
Bawa assured the Council she is confident that the move will result in the full $10 million in savings.
Bob Young, chair of the City’s Economic Development Authority, at Tuesday’s EDA meeting said that for projections included in the earlier-approved schedule for bonding the City’s indebtedness for the projects, the assumed interest rate repayment was 4.5 percent, compared to the 1.6 percent rate for 30-year fixed AAA bonds today.
He also stated that by borrowing the money now, instead of later, the City will be able to get 2 percent back on that money, greater than its cost.
“If anything, I am nervous that we have to wait until October to market our bonds,” he told the EDA board. “If it was up to me, I’d do it today.”
But he indicated that there are procedural factors involved in the delay, including a review of the new plan by a bond rating agency scheduled for Oct. 1.
Still, City Councilman Ross Litkenhous said Monday that it is important for the public to be aware that the prospect of a $10 million savings is on paper only, and is not new money that the City can go out and spend. “It is based on the differential between the earlier projected interest rate we thought we’d be dealing with, and the much lower actual interest rate now. It also assumes the current low interest rate will still be in play come the day we sell the bonds next month.”
The impact will be felt further down the road, and if it is realized, it could contribute to a significant lowering of the citizens’ real estate tax rate as the burden of debt service payments will be considerably less.
Meanwhile, the progress on the west end project, including the construction of the new high school that is now well underway, continues apace. George Mason High School student members of the EDA told the board Tuesday that progress on the new school is currently in the form of “a really big hole” that concrete is now being poured into next to the existing campus site that will be demolished once the new school construction is complete, the target date for that being December 2020.
Young reminded the EDA board that it could be asked as early as this January to accept from the City the deed for 10 acres of the property that is being set aside for dense mixed-use development, since state law prohibits a government entity from extending a lease on its land longer than 40 years, and the deal with the developers of the West End project involves the promise of a 99-year lease.
The specific terms still need to be hammered out, but the idea would be an agreement to hand back the land to the City at some point.
Meanwhile, the prospective bond sale in October would be used for a wide array of City CIP projects, including $95,500,000 for the George Mason High School construction, $350,000 for the City Hall public safety renovation, $7,307,999 for the Mary Riley Styles Library expansion and renovation, $373,000 for Fire Station 6 reinvestment, $150,000 for park master plan implementation, $550,000 for sewer treatment plan upgrades, $700,000 for stormwater improvements, $500,000 for fixed costs of issuance, $600,000 for the underwriter fee and $794,001 for contingency, in addition to the $20,000,000 to repay the earlier debt issuance.
The bottom line of this is that the City should be able to finance all of the remaining redevelopment and expansion plans at what it expects will continue to be, by October, record low interest rates, which will be a remarkable boon to taxpayers.