Town Council Plans to Refund Bonds Issued in 1992

The bonds, which were passed by town voters in 1992, were originally designed to fund public improvement projects. No residents spoke regarding the proposal, and the council approved it unanimously.

The refunding process constitutes selling new bonds when interest rates are low to pay back the debt on old bonds and establish a new, lower-interest debt.

Jim Baker, the town's financial director, estimates that refunding bonds will save the town $165,000 over the next eight years. That amounts to about $20,000 saved per year on interest payments alone.

When the town issues bonds, private financial institutions like banks buy them, which gives the town money to spend on specific projects.

But the town has to pay the money back plus interest. Such payments are primarily made with taxpayer dollars.

The bonds issued in 1992 have not been completely repaid yet, so town officials decided to find another strategy for lowering the interest rate payment on the debt.

"Refunding bonds is like refinancing the mortgage on your house," Baker said.

The N.C. Local Government Commission, which handles local bond sales including Chapel Hill's 1992 bond, will sell $3.8 million in bonds March 12 to pay back the $3.4 million it still owes on the 1992 bonds.

Baker said the $3.8 million will be paid back over the next 10 years.

Bonds are normally paid back over a 20-year period, and 10 years have lapsed since the original bonds were sold, he said.

The council adopted a resolution Feb. 25 to refund the bonds, and Baker said the town has been planning this action since November, when interest rates fell.

The interest rate on the the 1992 bonds is 5.2 percent, but the current national interest rate is 3.2 percent.

"This is something we initiated in November," Baker said.

"It's just a fact that (the 1992 bonds) have the highest rate of any of our outstanding bonds."

Only one question was raised at Monday's meeting. Council member Bill Strom asked Baker how involved the town would have to be in getting the 1992 bonds refunded.

Baker said the refunding process would require little administrative work and will make more money available for the town.

Baker said it is possible to refund the bonds to get a lower interest payment because of provisions set up when the bonds are issued.

"The bondholders don't have a say in that matter," Baker said.

"They buy them knowing that provision exists, but they get whatever they originally paid back."

The City Editor can be reached at citydesk@unc.edu.