Mayor Jose “Joey” Torres’ plan to reconstruct 170 primary city roads will cost taxpayers an additional $900,000 in interest payments due to recent credit rating downgrades, according to city officials.
The estimated repayment for borrowing $35 million was projected at $54.4 million last year. Now, due to back to back downgrades of state and city credit ratings, debt service is projected at $55.3 million over 24 years.
Neil Grossman, the city’s bond counsel, of GB Associates, during a presentation before the city council on Tuesday evening, said the debt service cost is “negligibly higher” compared to the large sum of money the city is borrowing.
Council president Julio Tavarez called for a presentation that would reflect the city’s changed finances. He said when the United States Federal Reserve increases interest rates the city could be faced with ever increasing mountains of debt.
“That’s going to be catastrophic for the city,” said Tavarez. He particularly pointed out the manner in which the city will borrow funds in phases to complete the 170 roads over a three-year period.
Each time the city goes out to borrow money it will be faced with higher and higher interest rates. The city has borrowed $11.7 million for phase-one of the project in short-term bond anticipation notes (BANs) at twice the projected interest rate.
The projection last summer was two-percent, the city has borrowed at four-percent. Those notes will be converted to long-term bonds in December. At that point interest rates will be locked in place, said city officials.
Tavarez pointed out other projections included in the presentation. A worst case scenario projects a $60 million debt service. “This is just a train out of control,” he said. “This is truly a bad investment.”
The council president said the city could lose a great deal in the long run. The city’s last debt payment for the $35 million loan will be in 2040.
“By that time we’re going to have to repair those roads four or five times and we won’t have the money to fix our roads,” added Alex Mendez, councilman at-large.
Mendez spoke to the way the debt service payments will be made. The city to pay debt service using the money that would have gone to road repairs. Torres said the roads will last 30 years. Instead of repairing bad roads at great expense, the city will have new ones that will not require repair for decades, reasoned the mayor when he initially made the pitch to taxpayers and council members.
“I don’t know any roads that’s going to last us 30 years,” said William McKoy, 3rd Ward councilman.
“I’m hoping I don’t get burned,” said Kenneth Morris, councilman at-large.
The first phase of actual road reconstruction project will begin this year. Council members awarded $6.75 million in contracts to two firms on Tuesday evening to start work before winter hits.