October 7, 2012

Editorial: Columbia should use savings from refinancing wisely

WE COMMEND Columbia officials for exercising good stewardship by refinancing outstanding city loans at a lower rate, saving about $18 million.

WE COMMEND Columbia officials for exercising good stewardship by refinancing outstanding city loans at a lower rate, saving about $18 million.

The goal should be to put that cash to the highest and best use and, as much as possible, lessen the burden on taxpayers and rate payers. The last thing City Council should do is to fritter this money away by redirecting it toward nonessential or frivolous projects.

Although the city is required to keep the savings in the accounts for which the money was borrowed rather than place it into the general fund, that’s no guarantee that the council can’t or won’t find a way to apply the savings to some other use. After all, the biggest savings will come from the water and sewer fund from which the council siphons off $4.5 million each year for city operations. What’s to stop the seven-member body from taking a few hundred thousand dollars more once the savings start rolling in?

Frankly, we wish the city could use the savings in the water and sewer fund to reduce rate increases planned for each of the next four years to pay for much-needed system improvements. But because of the way the savings will flow in, the annual impact would be minimal at best, according to city manager Steve Gantt.

City leaders took advantage of record-low interest rates to reduce payments on five loans that were taken to cover such projects as water and sewer system improvements and construction of the metropolitan convention center. The savings from refinancing $137.4 million in loans are expected to come over seven to 18 years as the loans are paid off.

The biggest savings come from two large loans for improvements to the water and sewer system, which will save the city $9.9 million by 2030, or about $940,000 annually.

No matter how small the amount, none of this money should be treated as a windfall. For example, refinancing a $15.5 million loan for such things as road improvements and the construction of a fire station, which was backed by property taxes, will save about $622,000 by 2022. It would be easy to say that the average of $62,000 a year is nothing in a budget the size of the city’s. But every penny counts; it’s important to properly use that money and not divert it toward pet projects.

Mr. Gantt says the city can use the savings in a way that would be beneficial to the public. For example, it could use the cash saved in the water and sewer fund to help pay for improvements to the system, meaning the city would borrow less money and pay less interest. Also, money saved in the general fund could be used to help make capital purchases, such as patrol cars and ambulances.

It makes sense, as Mr. Gantt suggests, to set this money aside and use it to pay for real needs — and to limit borrowing as much as possible — instead of diverting it to some casual use. City Council should heed the city manager’s recommendation.

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