The Jackson City Council voted 3-2 to approve a resolution leveraging future 1% sales tax revenue to obtain a $90 million loan to fund infrastructure projects on February 27.
The city's financial adviser, Robbi Jones of Kipling Jones in Houston, explained the loan to the city council. She said the city will borrow $90 million from an unnamed bank. $80 million will be used for infrastructure projects while $10 million will be held as a "cushion". Eleven investment banking firms were invited to present financing options to the city. However, all but one offered traditional bond deals. Bond pimps gonna bond pimp. One bank offered to provide $90 million but carry the loan on its books instead of dumping it off to bondholders.
JJ has learned the bank is JP Morgan/Chase. A term sheet was offered to the city on February 16. The losn is a two-year note. The city will have to refinance the loan in two years. The current interest is under 2% and based upon the 30-day LIBOR rate.* The loan is structured as a line of credit. The bank will allow the city to use a monthly drawdown schedule. The city can use the funds only for projects approved by the 1% Sales Tax Commission. They city pays interest-only on the first draw until there is another draw. The commitment fee is less than 0.3% of undrawn funds. A large portion of the loan will be used for the Tiger grant projects (West County Line Road and North State Street). The specific details of the Tiger grant projects will be provided in a separate post. (Discussion of Tiger Grant begins at 14:00 and ends at 55:00).
Interim Public Works Director Jarriot Smash said the primary reason for obtaining the loan was to fund the Tiger grant. The price tag for the Tiger grant projects jumped from $19 million to over $38 million. He said none of the money would be used for hiring employees in the public works department.
However, the city council members protested that the administration had not provided them with a schedule of projects or costs of the projects. Councilwoman Margaret Barrett-Simon took strong issue with Mr. Smash even though she voted for the resolution. She said (54:50):
We are asked to make this huge decision about whats before us today but we aren’t just comfortable without knowing exactly where the money’s going and its like in the sky somewhere and Lord knows, we need to have these facts to make a decision as monumental as this one.
Hendrix chimed in and said he should be able to immediately tell constituents how the money will be spent. He said the council would like to see a list of projects, estimated costs, and a schedule for when they would begin.
Councilman Ashby Foote pointed out that the city would have to draw down the line of credit within a year. He said the interest payments will be $1.6 million per year. He said "I can’t imagine we have the capacity to do this much work in a year. My question is why the $80 million. (1:18:00) Why not $30 million? That gives us money to give the matching grant and move forward."
Ms. Jones said that this was the deal offered by the bank and that the terms could change for the worse if the city waited to borrow the money. Mrs. Barrett-Simon somewhat disagreed (1:21:30):
I think it puts us in such a bad position here not to have concrete answers. The city knew which projects would be funded by the loan. The council should have been the first to know so that we could negotiate ourselves . But right now we got a March 1 deadline to hold these rates in place . Our backs are against the wall. We risk losing two or three very important projects if a decision isn’t made and yet there are some folks up here who have no idea what is going to go on in their area of town. … It’s not a good position to put this council in.
The city council voted 3-2 for the inducement resolution** but did not give its final approval. The resolution will go to the Mississippi Development Bank for its March 8 meeting. However, the resolution was not presented to MDB at the meeting. The public notice advertised in various newspapers states that the city will present to the resolution to MDB in April.
Despite the protests of Mr. Hendrix and Mrs. Barrett-Simon, they voted along with Mr. Priester for the resolution.
*The LIBOR 30-day rate was 0.78% on February 27 but is 0.85% today.
**MSRB defines inducement resolution: "The first “official action” or evidence of official intent indicating an issuer’s intent to issue certain types of private activity bonds"
Kingfish note: Has anyone noticed that not one single mayoral candidate has objected to Jackson's borrowing $90 million? Guess they all can't wait to get their sticky fingers on this honey pot.