City to borrow $5 million for bond from private bank
November 24, 2009
BERLIN — The city opted to borrow up to $5 million for capital improvements from Laconia Savings Bank instead of from the New Hampshire Municipal Bond Bank. Now they have to amend the resolution to allow the decision.
Laconia Savings Bank offered the city an interest rate of 2.99 percent.
The municipal bond bank, meanwhile, required the city to commit to borrowing without knowing the interest rate. The city would have had to commit to the municipal bond bank by November 19, but the actual interest rate would not be set until December 2. The bond bank gives a rate which they will not exceed, which was 3.75 percent, but would not let the city know what the actual interest rate would be until December 2.
City Manager Pat MacQueen said in a memo to the council that he figured it was better to go with the private bank offering a lower rate now than to gamble that the bond bank would offer a lower rate.
The memo goes on to say that because the bond with be with a private bank there is additional flexibility. Because the bond includes a number of projects, some of which have unclear time lines, not all of the money will be spent right away. The city can take out only the money it needs and not pay interest on that which it doesn't.
The city can also prepay without penalty, which the municipal bond bank doesn't allow.
Councilor Ron Goudreau said the fee to establish the account with Laconia Savings is also $10,000 less than that of the municipal bond bank, $5,000 instead of $15,000.
The decision requires the city council to amend the resolution it passed several weeks ago to clarify they are not restricted to borrowing from the New Hampshire Municipal Bond Bank. The council was to have the first reading of the resolution last week, but they didn't because they didn't have a quorum.