Board Hears Loan Options in Paying for Municipal Campus
SANATOGA PA – As drawings are refined, and general planning continues on a proposed $8 million Lower Pottsgrove municipal campus, expected to be built at the southeast corner of East High Street and South Pleasant View Road, the township Board of Commissioners heard a presentation Thursday night (Sept. 24, 2020) on ways to finance the project.
Several major decisions about the campus – which would house the township administration and its police department in separate and secured wings – are yet to be finalized, commissioners declare. The board Infrastructure Committee, which last reported Aug. 27, indicated the building construction cost, square footage, and even the number of rooms it contains remain undetermined.
“We’ve got a number of things to get through yet,” Commissioner Ray Lopez said at the time.
When plans are complete, however, commissioners want to be prepared to publicly discuss what funding sources they’ll rely on to pay for the structure. Both the $8 million price tag, and the imposition several years ago of a township Capital Reserve Fund tax to kick-start revenue for the project, drew criticism from taxpayers who attended a board meeting at which the campus was introduced.
To answer future comments and address other topics, Manager Ed Wagner noted the township has periodically talked since earlier this year with Jamie Schlesinger (at top), director of the Malvern PA office of PFM Financial Advisors LLC. Schlesinger arrived at the meeting armed with statistics, reports, charts, and three separate borrowing options.
Three different borrowing choices
The township has an excellent credit rating, Schlesinger said. It has the legal ability to raise taxes – the reserve fund, for example – to ensure its debts are covered, he candidly added. It also has good access to money available at interest rates that have remained low for almost a decade. Assuming an $8 million need, he said, the board could borrow from:
■ A bank, under a short-term loan of roughly 8-12 years, at a current interest rate in the 1-percent range; “a fantastic rate,” Schlesinger said. A bank loan is likely easiest to obtain and involves the least paperwork, but its limited repayment period may make it less acceptable.
■ A bond pool, from which several borrowers draw cash from the sale of municipal bonds for the purpose. Its repayment period can extend between 20 and 30 years, and interest costs are “in the low 2s,” he said. The paperwork is more complicated; more attorneys are involved. There are risks, too, Schlesinger indicated. If a pool member defaults on an obligation, remaining members must pick up that cost even though it isn’t theirs. And,
■ Sale of a township municipal bond, again with repayment of up to 30 years. It gives Lower Pottsgrove more flexibility in drawing money, and the ability to make future changes, both to “create a comfort level for your budget,” Schlesinger explained. Costs and the personnel involved in the bond market are highest of the three, he said.
At current interest levels for long-term borrowing, Schlesinger estimated the township might obtain its $8 million over a 20-year term, at an interest rate of about 2.2 percent, resulting in an annual payment of about $500,000; over 25 years at 2.3 percent, for a $425,000 annual cost; or over 30 years at 2.4 percent for $375,000 annually.
The reserve fund tax now brings in about $300,000 a year, Wagner added.
“When you’re dealing with this much money,” Schlesinger suggested, “the details really matter” in determining final costs. His firm, he added, was prepared to assist the board “at a flat rate” fee in finding best possible options and terms. The fee apparently was provided to commissioners but was not announced publicly.
Board President Bruce Foltz thanked Schlesinger for the information, and said the board would “take in under advisement.”
Photo by The Post