During the month's first regular Tallassee City Council meeting, brokers from Frazier Lanier, an investment banking firm, spoke to councilmembers about the city's credit rating and the major savings it will receive after refinancing two municipal bonds.
The savings will come in the form of a check for $595,451.
"I want to reiterate the good leadership of the city council, the mayor, Whitney (Pitchford), Stephanie Hornsby and many others who helped put together the story that we had to tell to the S&P," Frazier Lanier's Lee Garrison said during the Aug. 11, council meeting.
The S&P is the rating agency that rated the city's debt ratio.
"This is basically your banker if you are a city, a county or a school," Garrison said.
City officials have been closely watching the bond market, even before the recent health pandemic.
"I want to start out by giving a brief about the market," Garrison said. "We were starting to get ready for this during and before COVID. There were many conversations and emails during that time period."
According to Garrison, once the health pandemic reached the United States, the effects were immediate.
"As soon as COVID hit in mid-March, everyone pulled their money out of everything," he said. "Bonds, stocks, gold; you name it. Everyone was holding on to dollars, cash. Everyone was scared. So, our market shut down for a couple of weeks. We felt like it would come back with low-interest rates after what the feds did, as far as cutting the interest rates to zero, and sure enough, that happened. We were able to time this as best as you can time anything, it was at pretty much an all-time low in the history of the United States as far as interest rates go."
By refinancing to a lower interest rate, the city will receive a check for the savings. This money will have to be designated only for certain improvement projects.
"The City of Tallassee definitely received a good benefit, and that benefit ends up being almost $600,000 with all that savings in a check that you all will receive," Garrison said.
According to Garrison, if the money is spent on capital improvement projects, the bond payments will remain the same.
"For the life of the debt, everything is still the same," he said.
By restructuring the city's utility billing system, Tallassee's budget saw a marked improvement.
"Seven million dollars, which is a lot of money for a city this size, then putting it strictly on the utility system and letting the utility system sustain itself instead of having general funds also subsidizing your utility system," Garrison said.
The city was last rated by the S&P in November 2016, and back then the utility systems revenue loss was a major concern to the rating firm. However, in recent years, city officials have taken the necessary steps to recoup some of the revenue loss in the utility departments.
"When (S&P) rated you all previous times, it mentioned what I just said: You did it and you should be very proud of it," Garrison explained. "The rates are still very fair rates for the region, your cash position has improved. Everything about the financial picture, everything about the operation over the past two or three years has come light speed ahead, and you all should be proud of that."
In November 2018, the city contracted Jackson Thornton Utilities to conduct a cost of services study on the city's three utility systems. The results showed that collectively the city was losing close to $850,000 a year by providing those services.
The study revealed the water system was functioning at $374,064 under-recovery yearly to provide water to Tallassee residents. The city's sewer system is operating at a $503,517 deficit while the city's gas system is breaking even.
In December 2018, the council voted to raise utility rates and began to plug the $850,000 a year loss.
"A utility system should sustain itself and that's what these credit agencies are looking for and that's what you all are doing,” Garrison said. “I know that raising rates on water, sewer and gas is no fun. Nobody wants to do it, but at the end of the day, you have to do it or be out of business. Make the tough decisions, stay on the path that you're on now and it will continue to benefit the City of Tallassee.”