$2.4 Million Bond Issue Canceled
Sunday, October 5, 2008
The North Beach Town Council backed out of a bond sale agreement for up to $2.4 million last week to build a town hall, forgoing an opportunity to lock in a low interest rate.
The council canceled a meeting regarding the issue Tuesday night because there was not enough support to pass the resolution approving a bond agreement with SunTrust, Mayor Michael Bojokles said.
"Given the state of the national economy, it may not be a good idea to look at more debt," the mayor said.
Bojokles said he was frustrated, because the town was a offered "a historically low interest rate" even as rates are climbing.
"It is simple math," he said. "You can buy more house with 4.69 percent than you can at 6 or 7 percent."
North Beach's town hall was torn down about a year ago after extensive mold was found during a renovation. Town officials have since been working out of a trailer.
During recent council meetings, neighbors and constituents expressed concern that the council was prepared to spend too much on a town hall that would be too big.
The proposed two-story building includes nearly 10,000 square feet of offices for town employees, a council chamber and public meeting space.
"Of course, we can discuss size and scope, but my feeling is that can wait another day until we know how the economy is going to come out -- and nobody knows," council member Lyn Striegel said.
"It is just isn't the appropriate time at the moment," she said.
Council member Randy Hummel had a different opinion about the timing.
"I think we missed a chance to lock in a good rate," said Hummel, citing spikes in interest rates in the previous week. He said he could remember when, 20 years ago, the town couldn't qualify for bond sales and was forced to "piggyback" on Calvert County's bond packages.
Hummel said his colleagues were worried about being locked into an agreement even as property tax revenues were decreasing.
The construction bond would have been backed by SunTrust, keeping it out of the currently volatile public markets. The bank proposed a locked interest rate that would have probably been between 4.66 and 4.71 percent, said Joseph D. Mason, the town's financial consultant, who works with Davenport and Co.
"As we speak right now, it is very difficult to get municipal bonds sold in the public market on any basis. . . . If I could get a transaction done, the rates would be higher than bank-qualified financing would be."
He said when the town is ready to move, he thinks the bank-qualified interest rates still won't fluctuate as high as interest rates in the public markets.
To secure the rate with SunTrust, the town was required to finalize the agreement by Friday. The bonds would have had to be sold by the end of the year.