If the Keeler family's accountant thinks it is a good idea, the city could pay off the 35-acre Keeler family property it bought this spring and then repay the state over 10 years with a smaller annual payment.
The council will consider formal action on the proposal at its Nov. 24 meeting after hearing from the Keeler family.
Administrative services director Karen Goschen said the state is sending a large real estate bond to market for either a 10- or 20-year period as part of the low-cost financing program that goes by the acronym LOCAL.
The program uses real estate as collateral for long-term bonds that can be used for land and equipment purchases. It was created by the Legislature in 1989 and expanded in 1998 to allow local government participation.
Goschen said she's been assured the city will be allowed to participate in the program.
It would allow the city to pay off the Keeler property in mid-December and then repay the state $81,000 over 10 years or $50,000 over 20 years, she said.
The state is bundling several large land purchases in the bond so the interest rate might be as low as 5 percent, Goschen said.
It would count against the city's debt limit of about $12 million, she said, adding the water reuse project's debt doesn't count against that limit because those are revenue bonds not general obligation bonds.
According to the LOCAL program's Web site, its current Moody's bond rating is "Aa2." That a subsection of the second-best possible rating of Aa. The best rating is Aaa.
On April 14, the city council agreed to buy 35 acres on U.S. Highway 101 just east of Simdars Road that was adjacent to 10 acres of land donated by the Keelers.
The council agreed to pay $806,610 over five years with a 5-percent interest rate and $200,000 annual payments through March 31, 2012.
The $175,000 down payment made this year was funded by "park in lieu fees" and "vacated street-open space funds," according to a memo from Goschen to the council.
But the city doesn't have additional "park in lieu fees" to make the March 31, 2009, payment because of reduced development activity, the memo stated.
So the city could pay off the Keelers using money from its city hall and police station fund, then reimburse that money in February 2009 from the bond proceeds, Goschen's memo stated.
Then the city would make semiannual payments to the state totaling $81,000 a year for 10 years to repay the bond.
Goschen said a 20-year bond would cost $50,000 a year but would cost more in the long run because of the interest costs, adding there's no prepayment option. The city would pay the state, the state would pay the bondholder, she said.
The Sequim Citizen Advisory Board unanimously endorsed the 10-year refinancing plan at its Nov. 11 meeting.
City Councilor Ken Hays said the city should set aside the money being saved and collect interest on it.
Mayor Laura Dubois said the 10-year option would help the city during the next few years because it would provide lower monthly payments.
Capital projects manager Frank Needham said a state treasurer's office representative said at a conference in Wenatchee last week that bond sales are good, the only impact from the recent financial problems is on interest rates.
The Sequim Gazette is located at 147 W. Washington Street in Sequim.
Business hours are Monday through Friday from 8:30 a.m. to 5:00 p.m. Phone 360-683-3311, or toll free at 800-829-5810. FAX 360-683-6670.
For a complete company directory with contact information please click HERE.