City council members on Tuesday evening expressed reservation in moving forward with awarding $6.75 million in contracts for the first phase of mayor Jose “Joey” Torres’ road reconstruction project over credit rating downgrades that will likely result in higher interest payments.
“How has our financial plan to pay for this changed?” asked Julio Tavarez, 5th Ward councilman. He said the city’s financial picture has changed after credit rating agency Moody’s downgraded the city’s debt rating in early May. The two-notch downgrades will result in higher interest payments for city taxpayers, said Tavarez.
James TenHoeve, the city’s finance director, said the city has altered its borrowing plan. He said instead of borrowing through bond anticipation notes (bans) for one-year the city will borrow for six months. “It is wise for us to possibly to, in December, when these notes come due, look at permanently refinancing the balance of the project, that will freeze the rates for the next 20 years,” he said. “And get us out of the risk of continual downgrades of state and then downgrades of our bonds.”
The city has borrowed $11.7 million in short-term notes for phase one of the road reconstruction project at four-percent interest rate instead of the two-percent that was projected in mid-2014. The city’s financial experts placed the total amount of interest the city would pay over the life of the $35 million loan at $20 million. The city scraped together $2 million to place the road repair plan at $37 million.
Kenneth Morris, councilman at-large, said the city has to figure out whether it’s more beneficial to move forward with the road reconstructions or simply paying back the borrowed money with interest. He noted that doing that would result in taxpayers shouldering the borrowing costs, but forging the benefit of the roads.
Tavarez called for a presentation that takes into account the recent downgrades and provides the council with new projections.
Mayor Jose “Joey” Torres said the numbers will not veer away from what was initially projected. “We will still be within the interest rates we projected,” said Torres. He said the bonds are guaranteed by the state.
The mayor pointed out that the 170 primary roads that the city intends to reconstruct will cover 60-percent of municipal roads. “Over 60-percent of the roads are going to be 100-percent rebuilt,” said Torres. He said this is not just resurfacing, but complete reconstruction that includes curbs, catch basins, and accessibility ramps.
He said the roads will last 30 years and the funds that would have been used to plug and repair broken roads will be used to pay back the money the city is expending now.
Those phase-one contracts are before the council. The city is seeking to award Bloomfield-based J.A. Alexander $4.82 million to reconstruct roads in 5th and 6th Wards. And $1.93 million to Wallington-based Smith-Sondy Asphalt Construction to resurface 1st and 2nd Ward roads.
Both firms submitted the lowest bids for the job. The 3rd and 4th Wards have to wait for the city to go to bid again because the bidders wanted $1 million more than the city had for the job. $5.90 million was the lowest bid for phase-one of 3rd and 4th Wards.
Business administrator Nellie Pou said the city will immediately go back to bid after the council rejects the high bid. She said that will result in no more than a couple of weeks of delay.
“I find it interesting we have bids from only these three companies,” said William McKoy, 3rd Ward councilman. “I’d like to see a more competitive environment.”
Tavarez wanted to postpone the resolutions, but later decided to keep them on the agenda for the next regular meeting of the council. The resolutions cannot be postponed because the roads must be completed before winter kicks in, said both Pou and Torres.
Morris if the city doesn’t use the funds and the road repair is postponed next year the city will still incur debt service costs. “You’re paying down debt service on something that you didn’t even do,” said Morris.
Missing from Tuesday’s discussion was the job creation component of the road reconstruction program. “They are overlooking one of the key piece of the project,” said Torres about the job creation component.
He said the companies that are being awarded the millions of dollars are required to hire, train city residents, or contribute to a job training fund. Harry Cevallos, city’s purchasing agent, said the firms had three options: to hire locals, to provide training, or contribute to a city job training fund.
The two firms opted to contribute to the job training fund.
Cevallos, who has been with the city for 20 years, said this is the first time the city attached a local employment component to awarding a contract.