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June 2012
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Bond refinancing saves city $380,000

Staff report

The City of Paducah is taking advantage of low interest rates by refinancing a bond issued in March 2010. 

The finance department was notified last Tuesday that the city locked in an interest rate of 2.62 percent. The original rate was 3.35 percent. 

"Even though the rate seems very similar, it is a significant reduction," said Finance Director Jonathan Perkins. "Refinancing this bond will end up saving taxpayers approximately $380,000 in interest payments over the life of the loan."  

According to Perkins, that's more savings than was originally estimated. The Paducah City Commission approved refinancing the 2010 Build America Bond at its May 20 meeting. At that time, the amount of savings was estimated to be $210,000.

In 2010, the city issued a 20-year, $6.645 million bond for various public projects, including the Greenway trail, the replacement of the Noble Park parking lot, street resurfacing, the installation of generators and traffic signals, and the purchase of the Executive Inn. 

At this time, the remaining principal on the bond is approximately $5.545 million. 

As part of the bond refinancing process, the city received a reaffirmation of its Standard & Poor's rating of AA-. S&P assigned the same rating to Paducah in 2010. The S&P summary stated Paducah has very strong budget flexibility and strong budget performance; very strong liquidity providing very strong cash levels to cover both debt service and expenditures, and strong management with good financial policies and practices. 

"The City of Paducah refinanced two other bonds in 2010 and 2011, which ended up saving taxpayers more than $1.5 million over the lives of those bond issues," said City Manager Jeff Pederson. "I applaud the professional management in the Finance Department for being good stewards of taxpayer dollars.  Paducah, with an excellent bond rating of AA-, has been able to reap fiscal benefits unlike many other cities and counties."

The city is looking to refinance an additional bond issued in 2005 during this upcoming fiscal year to take advantage of lower interest rates.

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