This week, the City of Pierre refinanced its federal Build America Bond to save local taxpayers $2.15 million over the next 20 years.
“We are always looking for opportunities that financially benefit the City and those who live here,” said Pierre Mayor Steve Harding. “This refinancing was an astute move that will improve the City’s financial position for the next two decades.”
The City’s original bond agreement is from 2010 when the City used the federal Build America Bond program to finance improvements to the City’s electrical system. Those improvements included construction of the City’s fourth substation, additional transmission lines, and modernizing of existing distribution infrastructure.
According to Twila Hight, City Finance Director, the upside of federal bonds is that they provide a very stable market. The side effect of that stability is a rigid structure.
“Because of how this bond was set up, we had no ability to refinance or payoff the bond until this year,” said Hight. “With the opportunity now at hand, we were able take advantage of the current market and refinance the debt at a fixed rate of 2.98% until the debt terms out in 20 years.”
Prior to the refinancing, the City was paying an interest rate of about 4.15% on the original 30-year $13.89 million bond agreement.
Because the Build America Bond program was part of President Obama’s stimulus package, the 2010 bond came with an additional benefit. For year one of the bond, the federal government reimbursed the City 45% of the interest it paid on the bond package. However, that federal reimbursement dwindled year over year as Congress appropriated fewer funds to the program.
The refinancing will equate to $107,500 in annual cost saving for the City. That savings will be realized in the Electric Fund that supports annual electric operations, improvements, and equipment purchases.