Home News Local News Analyst: Compactor loan would cost city $135,000 a year

Analyst: Compactor loan would cost city $135,000 a year

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Taking out a loan to purchase a new solid waste compactor for the landfill would add about $135,000 a year to the city’s debt service over 10 years, according to an analysis presented to members of the Finance Committee on Monday. Low interest rates could make that an attractive option when the Roswell City Council hears that request Thursday night.

Financing the compactor purchase was just part of the analysis presented by Erik Harrigan, managing director of RBC Capital Markets, Albuquerque. The analysis also looked at the city’s capacity for issuing general obligation bonds.

The City Council will consider at its regular meeting Thursday approving a request from the Solid Waste Department for a new Caterpillar 836K landfill compactor to replace a heavy-duty compactor that has broken down.

The council will also have to decide if the $1.2 million purchase will be made through a loan with the New Mexico Finance Authority or existing funds.

The Solid Waste Department has $200,000 in its current budget if the council chooses to use existing funds. Cash reserves would cover the rest, Administrative Services Director Juan Fuentes said at Monday’s Finance Committee meeting.

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Without a quorum present, the Finance Committee could not vote on making a recommendation regarding the financing.

Harrigan said his company’s analysis estimates an interest rate of 1% or less for a 10-year loan.

“A year ago, the city would be looking at a borrowing rate of probably a little over 2%, but rates have come down so much that we’re looking at right around 1% or below 1% potentially,” he said.

Committee Chair Jason Perry asked what other municipalities are doing right now, considering gross receipts tax collections are also low.

Harrigan said that among the firm’s clients of city and county governments and school districts, about 60% are taking advantage of low interest rates while 40% are holding off to see if the economy stabilizes.

Another factor that could influence the council’s decision on purchasing the compactor is the city’s efforts to separate the enterprise funds of airport, water, wastewater, solid waste and landfill, and rate studies for those funds.

“They’re all individual enterprises. Their fees, their rate structures should be paying for that operation and that service,” Fuentes said.

“For many years, the city consolidated all those enterprises, so in substance, the water was subsidizing wastewater, the collections side of the landfill was subsidizing the landfill side,” Fuentes said.

“Now that we started to separate that and we’re going through a rate study, we’re actually seeing where each of these enterprises are,” he said.

Year-to-date figures show the water and wastewater enterprise funds are holding their own in revenue versus expenses, Fuentes said. However, in solid waste, the collections side is still subsidizing the landfill, he said.

In addition, the landfill will be closing one cell and opening another in the near future, a project that will cost around $2 million, Fuentes said.

“We have to be mindful of these obligations that are coming up,” he said.

Regarding the city’s general obligation bonds, Harrigan said his firm’s analysis shows the city could issue up to $6 million in GO bonds with a 15-year maturity rate without raising taxes.

The city has one bond issue that is outstanding from 2008. Originally issued at $4.1 million, that is now paid down to $770,000 and will be paid off in August 2022.

“From a total capacity standpoint, the city is capped at 4% of your assessed valuation, which is $31 million. So with the outstanding debt the city has of $770,000, your net capacity is $30.3 million,” Harrigan said.

“But going up to that capacity would require a tax increase,” he said.

The city could issue bonds in 2022 when the current bonds are paid off, or issue bonds in 2021 by restructuring the 2008 bonds.

“It would require extending the debt out by one year,” Harrigan said.

Under that scenario, the current bonds would be paid off in 2023 and new bonds would have a 16-year maturity rather than 15.

Overall, the savings in restructuring the current debt would amount to less than 3%, which would not be economically beneficial to the city, Harrigan said, but would allow the city to take advantage of low interest rates.

Any bond issuance would have to first be approved by voters.

City/RISD reporter Juno Ogle can be reached at 575-622-7710, ext. 205, or reporter04@rdrnews.com.