minfin 02-07-22 - Laserfiche WebLink

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cities will divert operating funds to finance debt, whereas Lakewood has a dedicated portion of property tax millage for financing the city's debt. This prevents the diversion of operating funds, while other portions of the city's operations are funded by enterprise funds. A notable amount of Lakewood's debt is paid with user fees or with property tax that is dedicated to it. These practices have caused the city to score high marks with credit ratings agencies and investors. He then explained the difference between 1-year notes and long-term bond issues. If a city has a number of projects with the final cost totally known, it is good to take out notes to fund them. Cities will then combine several years' worth of notes to stretch debt over time. Mr. Rink and councilmembers then interacted over the financial patterns of practice that the city has used and discussed their logic. Mr. Rink indicated that the city's 2012 debt issuance is about to be paid off next year. It was established that it is more expensive to do bond issuances every year and that the City does notes annually and converts them into bonds every 2-3 years, which are then refinanced whenever rates are cheaper. The reason why notes are cheaper is due to their shorter loan terms. It is beneficial to not have all the city's debt in one note, as interest rates could change. Lakewood will put newer projects into short term notes because it likely does not know the full cost of them. This is common financial practice by many cities. The Finance Department has the ability to lower the borrowed amount on a note to better match with project pricing, in the event a grant or reimbursement for a project is received from another entity. Councilmembers asked what happens if there's a large variance in the cost of a project that is construction related. Mr. Rink clarified that the Director of Finance only has authority to lower the debt issuance, not increase it, which would be Council's responsibility. Councilmembers asked what options the city might have with a change of the cost of its debt anticipated in June/August. Mr. Rink indicated that the city could choose to apply funds with approvals to other projects or pay down debt with any leftover money. Lastly, councilmembers asked whether the Federal Reserve has predicted rate increases in March. Mr. Rink stated that the Fed has predicted increases in March and throughout the rest of the year. The next rate hike is being priced into notes and bonds right now, however the city still wants to get to the market with its debt issuance as soon as possible in March. Mr. Rink then concluded with discussion about the insulation of 1-year notes and market volatility. Councilmembers proffered questions about levels of demand for municipal notes. Mr. Rink stated that his role at Key Bank involves soliciting more demand as the bank sells the product, with the goal to get more orders for the notes than what is needed. The Key Bank group makes judgments on interest rates, sells short-term 1-year notes, and researches the market to know what notes are already out there. Brief discussion ensued on the water main debt for the year, which was determined to be $7 million. It was determined that this year would not be a bond year for short-term notes. Notes were combined into a bond last year, as interest rates were at their lowest, while they are still relatively low today by historical standards. When asked for his thoughts on the future of the city's bonding, Mr. Rink emphasized focusing on refinancing the city's debt as soon as it is eligible to take advantage of savings it could offer. He noted that he meets with Catherine Swartz of Bricker & 2