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Water Fund projects that have been delayed in previous rate setting conversations could be <br />accelerated to spend cash sooner which will also reduce reserves. <br />Regardless of the down payment, Staff does not believe any 30-year term provides additional <br />value given minor reductions in rate increases while yielding significant additional interest <br />payments. In the event the City undertakes additional bonds in the future, lower payments over <br />30 years are helpful but in the long run paying debt off faster is likely more beneficial. <br />The best combination of overall rate increase needs and total principal and interest is a 20-year <br />term, paying interest only the first 5 years, and then a fixed payment thereafter. This <br />combination yields 2.8% annual rate increase over 5 years (2" d least) with a total principal and <br />interest payment of $23.3 million (4th least). From a fundamentals perspective it is not <br />considered good practice to undertake loans with interest only years for repayment. However, <br />the lower interest only payments provide time for rate smoothing to be effective which <br />minimizes the overall long-term rate increase. <br />For an additional 1.5% overall increase over the 2.8% increase for a total annual rate increase of <br />4.3% the City could undertake a traditional 20-year fixed payment loan structure with total <br />principal and interest payments of $22.8 million. <br />In all cases interest rates are assumed near equal for Group Financing or City Self Financing and <br />will range from 2.5% at 20-years to 3% at 30 years. <br />Group Financing versus Self Financing <br />Staff has previously recommended Group Financing to leverage the expertise and staffing of the <br />Northern Colorado Water Conservation District in origination and future administration of <br />bonding requirements, reporting, and auditing associated with the Project. <br />However, the City may also desire future flexibility in prepayment or refinancing at a future <br />date. <br />Advantages and Disadvantages are provided as follows for each type of financing structure: <br />16 11 <br />