August 20, 2008
Fosters
SOMERSWORTH — City officials have three options in bonding for the new elementary school, if they choose to move forward with that plan.
Recently, Sheila St. Germain, executive director of the New Hampshire Municipal Bond Bank, spoke to the City Council and explained these options and how those choices would affect the tax rate over the life of a 20-year, $19,930,790 bond, based on an estimated interest rate of 5.25 percent.
“We try to be conservative” with the interest rate estimate, Germain said, adding the current rate is 4.25 percent, so the estimate is what the interest rate could be in another year.
The first option she explained was the Level Principle option, in which the principle payment would be “about the same” every year for 20 years. The estimated increase to the tax rate in 2010, which would show on the tax rate if the city bonded in 2009, would be $1.77. By 2029, the increase to the tax rate would be 56 cents.
“The overall interest is the least expensive but the impact on the tax rate is higher in the early years,” St. Germain said of Level Principle bonding.
State building aid, which would be awarded at 55 percent each year, is based on the principal payment, so that amount would also be steady each year with the Level Principle option, St. Germain said.
The second option is Level Debt, an option that is closer to a mortgage payment in that the principal and interest payments together are approximately the same every year.
There would be less principle in the beginning so more interest would be paid in total. With the Level Debt option, the estimated tax increase in 2010 would be $1.56 and would be 88 cents in 2029.
State aid would increase toward the end with this option, St. Germain said.
A Capital Appreciation Bond, the third option, allows for a lesser impact on the tax rate in the early years of the bond that would increase in later years. The total interest cost would be more than with the level principle option, however.
The tax rate increase would be about 88 cents in 2010 and increase to $1.48 by 2029 with the Capital Appreciation Bond, St. Germain told the council.
For building aid, St. Germain said, “You will receive state aid in a higher amount earlier in the bond issue. The total building aid will be the same, there will just be more of it early.”
The numbers were also based on the city’s 2008 assessed valuation of $888,774,510, which St. Germain said will be higher 10 years from now “so your overall tax rate impact may be lower than what you’re showing here.”
As far as the tax rate impact, which has been a main concern of residents since the new school proposal arose, St. Germain said the decision on bonding options is really based on what the city can pay for.
“It’s really more of an affordability issue,” she said, adding because she doesn’t see any problems with selling municipal bonds at this time, “I don’t think that municipalities should be looking too much at the economy trying to see what stocks are going to do and what bonds are going to do. You need to look at the needs of your community; what you need and what it will cost to do it.”
After her presentation, Mayor Mike Micucci said he liked the idea of a Capital Appreciation Bond.
“I like my gratification early,” he said.