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Project financing back up for review

Interest rate uncertainty has commission reconsidering mix

POSTED: July 11, 2013 12:27 a.m.
 

Concerned with rising interest rates, Forsyth County commissioners decided Tuesday to review financing options for the jail and courthouse construction projects.

The commission voted 5-0 to return to financer United Community Bank and ask about a fixed interest rate, as well as work with Citi on bonding $30 million of the total at a fixed rate.

In October, commissioners approved borrowing up to $50 million in funds from the local bank under a variable interest rate plan.

The buildings will be paid for through the special purpose local option sales tax, or SPLOST VII, which voters approved in November 2011, but a line of credit was approved to advance the funding.

Construction in downtown Cumming started Monday, about a week after the round of sales tax collections began.

The county has already borrowed about $6 million for the preliminary work, said David Gruen, finance director. The total project has been budgeted at about $100 million.

During a work session Tuesday, Gruen presented several scenarios about how the moving rates could impact the county’s interest costs to the bank.

The total interest cost would be about $2 million in the “highly unlikely” event that the interest rate remains at about 1.5 percent for the five years of borrowing, Gruen said.

“Rates are probably going to go up,” he said. “The question is how fast and how high?”

An increase of a half a percent each year would total about $3.3 million, while a quarter percent per year would cost about $2.7 million, he said.

A likely scenario, Gruen said, would be if the Federal Reserve continues to hold short-term borrowing rates low for two years, and then the rate climbs a half percent for three years. That would also total about $2.7 million.

Setting a fixed rate or bonding some of the remaining funds could save more than $600,000 in interest costs if the rates climb faster or steeper, he said.

The county also faces costs of issuing bonds, which could total $300,000, and has spent about $190,000 for the closing costs and attorney’s fees of working with the bank, Gruen said.

 

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