In search of savings, Kalispell looks to refinance

Interest rates are at record lows. And with budget talks under way, Kalispell is working with bond counsel to see if any of its debt can be refinanced for lower interest payments.

“We have some big bonds out there,” City Attorney and Interim City Manager Charles Harball told Kalispell City Council members last Monday.

And interest rates that sounded low a decade or even just a few years ago now sound high. Shaving just 1 percentage point off Kalispell’s interest rates could mean major savings.

“Not just saving a few dollars, but hundreds of thousands of dollars to help us with cash flows in this budget and budgets down the road,” Harball said.

An analysis of potential savings is under way, with a proposal expected to be brought before the Kalispell City Council in May.

PART OF that analysis will look at refinancing Kalispell’s general obligation bonds for Woodland Water Park and Fire Station 62. Voters approved extra tax levies for the water park in 2002 and the fire station in 2005.

Each project has more than $2 million of debt. Interest rates are 4.66 percent for the water park and 3.94 percent for the fire station.

Lower interest rates would mean lower taxes for property owners.

How much lower those rates could go by refinancing is not yet known, but something in the 2 to 3 percent range is not unrealistic, guessed Finance Director Amy Robertson.

Kalispell taxpayers already are paying less for those two bonds just because of how the city has grown in size.

“Both started at 12 mills apiece. We’re down to 7 mills on the pool and 6.5 mills on the fire station. As the city annexes more property it lets us spread out the cost,” Robertson said.

THE ANALYSIS also will explore a number of water and sewer projects Kalispell has financed with fixed-rate loans from Montana State Revolving Fund programs.

That’s where the largest potential savings are expected to be found, Robertson said.

Foremost among those water and sewer projects is $13.4 million in debt for the 2008 wastewater treatment plant expansion. It carries a 3.75 percent rate.

Last year, Kalispell paid about $488,000 in interest and $460,000 in principal for that debt.

The city may be able to both refinance that debt at a lower rate and wrap in an estimated $860,000 repair that’s needed for the treatment plant’s concrete primary digest lid.

“If we got it at 1 percent less we’d save $160,000 on just that one bond,” Robertson said of the potential savings.

A 2011 financial report found Kalispell has $17 million in outstanding debt for various water and sewer projects financed through state revolving fund loans.

All of those projects will be examined for possible refinancing at lower interest rates.

“We think [rates] are kind of as low as they are going to go, so we want to do this before they creep back up,” Robertson said.

ACCORDING TO that 2011 financial report, Kalispell had more than $30 million in total debt at the close of the last fiscal year. Some of that debt likely cannot be improved upon.

For example, projects and equipment purchases financed through the Montana Board of Investments have seen their variable rates fall significantly in recent years.

That includes about $1.9 million owed for heating and cooling upgrades at City Hall and for fire truck, bucket truck and mower purchases.

“Those [variable] rates change as [interest] rates go down,” Robertson said.

“Some were 4.85 at one time and we’re at 1.25 for all [Montana Board of Investments] projects. That’s the new rate as of February. ... No one can compete with that.”

OTHER DEBTS are locked in, at least for now.

Kalispell initially financed a purchase and renovation of the new City Hall through the Montana Board of Investments, but City Council decided to enter a 4.85 percent fixed-rate mortgage in 2007.

“If it was at 1.25 now, that would have saved us a lot of money,” Robertson said.

With an outstanding balance of about $1 million at the close of last fiscal year, that debt is not eligible to be refinanced until 2015.

Reporter Tom Lotshaw may be reached at 758-4483 or by email at tlotshaw@dailyinterlake.com.