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Posted on: February 17, 2020

City Plans to Issue up to $16 Million in New Debt

The February 17th City Council meeting includes two Resolutions that start the process for issuing new debt. The Resolutions on the February 17th agenda set March 2nd as the Public Hearing date for;

  • Issuing debt in an amount up to $8.5 million for the purposes of;
    • Refinancing $2.35 million of a 2014 debt issue at a lower interest rate. This refinancing is expected to reduce the interest cost of this borrowing by about $250,000.
    • Taking out new debt of approximately $6.15 million to fund reconstruction of College Dr., Allison Ave. and 69th St. south of University Ave.
  • Issuing new debt in an amount up to $7.5 million to fund reconstruction of University Avenue.

The action at the February 17th City Council meeting only sets a March 2nd public hearing date. At the March 2nd City Council meeting the Council will accept public comments on the two proposed borrowings.

Following conclusion of the Public Hearing on March 2nd, the debt issuance schedule calls for the Council to approve Resolutions that authorize accepting bids for the two debt issues. Bids will be taken at 11:00 a.m. on April 6th. The April 6th City Council meeting agenda will include Resolutions authorizing acceptance of the lowest bid for each of the two debt issues.

If the proposed Resolutions are approved on March 2nd, the $8.5 million and $7.5 million amounts are the highest amount the City can borrow. Bids for the street construction to be funded with this new debt will be taken on February 18th for University Ave. and February 20th for College/Allison & 69th. The amount to be borrowed could be lowered based on the construction bids, but it cannot be raised above the $8.5 million and $7.5 million amounts set out in the borrowing Resolutions.

If the two debt issues are approved, the City will have outstanding debt totaling approximately 63% of its total debt capacity of $21,913,000. Debt capacity usage could increase to up to 78% in the next fiscal year, but then will drop to 47% by 2024 because the City will be paying down large principal amounts of the $8.5 million issue in 2021, 2022 and 2023.

The City has the financial capacity to fund these debt issues without taking into account likely property valuation increases over the next several years.

Interest rates on municipal debt are in the 2% to 3% range at this time. This is a good time for the City to take on new debt. There is no certainty that these low rates will continue. It is also likely that construction costs will increase each year. Waiting to undertake new construction projects could result in higher construction costs and higher borrowing costs.


Mark Arentsen, Interim City Administrator

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