By James Rincon

Pflag Reporter

Pflugerville City Council members unanimously approved a resolution Tuesday to begin the public notification process for the issuance of $4.25 million in new bonds for the next fiscal year.

The city will use the funds to pay NewQuest Property’s Stone Hill Town Center $4 million for meeting various performance standards over the last year. The bonds are slated to be issued Nov. 9.

During discussion on the resolution, city Finance Director Beth Davis alerted council members of an impending opportunity for the city to potentially save millions in debt services.

“Last year we issued refunding bonds and it saved the city over $1 million. With historically low interest rates, we’re going to look into refunding some more bonds this year. At this time it looks very favorable,” Davis said.

Harrison Securities President Bill Harrison told council members that the bond-buyer index is below 4 percent – a low not reached since 1968.

“Right now we’re probably in one of the most favorable markets we’ve seen in a very, very long time,” Harrison said. “Pflugerville bonds are very low interest bonds. We have a few sixes, but most of them are in the 5 percent range.”

Harrison and Davis recommended council members consider refunding some of the city’s outstanding debt service at current interest rates. None of the city’s outstanding bonds are callable, Harrison said, but he has received proposals to refund bonds through advanced refunding.

“Advanced refunding could be done with a savings at this time,” Harrison said. “We have a $30 million cap… so we’re looking in the range of $20 to 23 million in possible refinancing.”

Harrison said plans to refund could be included in the city’s official statement for the new $4.25 million bond being considered for the NewQuest payment, as well as with a $2 million bond slated to fund new library renovations.

“We can lower our issuing cost by consolidating all three of them [bonds] in one official document,” Harrison said.

Harrison requested council give final consideration for this refinancing at its Oct. 26 meeting.

In refinancing the bonds through advanced refunding, the city would issue new bonds at the current interest rate and put the proceeds of those bonds into escrow until the original call date of the initial bonds.

“It’s the obligation of the city just to pay on the new bonds. The other bonds you have defeased have literally gone away. They’re still out there, but they will be paid on escrow,” Harrison said.

Federal tax law stipulates that the city can only refinance a bond through this method once, according to city Bond Attorney Richard Donoghue.

“We’re very sensitive on when to pull the trigger on something like this. It really has to be economically efficient because you only get one chance,” Donoghue said.

Harrison projects the city could secure an interest rate as low as 3.7 percent for this one-time-only refinancing, which translates to a net present-value savings of close to 6 percent on the debt.

“The rule of thumb is 3 to 3.5 percent in present-value savings. Any time you get up into the 6 percent range – that’s what I’m looking at right now – that’s a strong refinancing, and that needs to be considered,” he said.

jrincon@pflugerville.com