During its introduction for first reading, mayor Jose “Joey” Torres’ $35 million borrowing plan to resurface the city’s primary roads faced some resistance in the city council.
“My concern is there is a lot of uncertainty and risk involved in this,” said council president Julio Tavarez. “We’re a little more certain of what the rate is going to be this year, but we have no idea what it will be next year, the following year, and definitely not four years from now.”
Torres’ $36.75 million road resurfacing program calls for the complete reconstruction of 170 primary roads. Out of that entire amount, $1 million will come from two surplus and capital funds that the city has, and the rest $35 million will be borrowed in the short-term through bond anticipation notes and in the long-term through municipal bonds.
The borrowing will be done at 1.5-percent interest rate for the first year, said Neil Grossman, city’s financial advisor. Then, the following two years the city will pay the prevailing market interest rate.
Glenn Scotland, the city’s bond counsel, said last week that for the first three years the interest rate will be approximately two-percent. However, the rate is an estimate that could turn either way depending on the mood of the market.
Three years after issuing the first bond anticipation notes, the city will switch gears to a long-term financial plan where the interest rate is estimated at 4.5-percent.
“My biggest concern is this thing could get out of hand real quick,” said Tavarez. “In four years, we could be in a lot of trouble because we don’t know what’s going to happen.”
Tavarez fears that the rate could jump at any moment and catch the city in a bad state. “We’re going to be basically at the mercy of the market,” said Tavarez. “If the rate changes to the point that now we’re paying $300,000-$400,000 more than what we’re supposed to be” paying, then the city might have difficulty keeping up.
“What I can do is give the council an estimate, same plan where interest rates aren’t four-and-half-percent, but they’re six-percent or six-and-half-percent,” said Grossman. “It’s an extreme, but it’s not impossible.”
Tavarez said he would like to see both the worst case scenario and the best case scenario.
Grossman said by looking at the plan where the interest rate is well north of six-percent, the council can see the future appropriations needed to service the debt.
Andre Sayegh, 6th Ward councilman, also expressed his reservation for the borrowing of this large sum which further increases the city’s debt. “We are a cash strapped city and we will be incurring even more debt with one fell swoop,” said Sayegh.
Sayegh suggested an alternative to the administration. “One suggestion I would make,” said Sayegh, “is to categorize the conditions of the roads and determine what roads are in the most need of repair, that would probably be the best instead of a blanket primary road resurfacing.”
William McKoy, 3rd Ward councilman, and Anthony Davis, 1st Ward councilman, said by fixing the roads the city will receive an economic boost and provide relief to residents who have for far too long complained about potholes that have turned into craters in most roads.
We cannot afford to do nothing, said Kenneth Morris, councilman at-large. “We have to do something.”
Council members on Tuesday evening voted to approve the bond ordinance for first reading with Tavarez and Sayegh voting against. Torres was not present at the council chamber during the vote.
Before the city can go ahead and borrow the immense sum of money to complete a primary road reconstruction project, it must get the approval of the state’s Local Finance Board.
City officials are hoping by mid-August the board will render a decision giving either a green or red light.