Jim Demming, city recorder, gave an update to the Board of Mayor and Aldermen earlier this month on the bond issuances along with Moody’s Investors Service’s opinion of the city’s financial situation.
According to Demming, there were three bond issuances for a total of $19.85 million. The first issuance was for $7.48 million — $4 million of which went to refund the capital outlay note for the RCHP, $2 million for the new fire station, with the remainder earmarked for various intersection and road improvements within the city.
The second issuance was for $11.17 million and will go toward the construction of the KCHE. The 50,000-square-foot center will be built on the site of the old Tire Center building. Construction is expected to begin in July and be complete and open by fall 2009.
These two bond issuances were for a 20-year term. The third bond issuance — $1.2 million for various water projects — is on a 15-year term.
Demming explained the payback on the capital outlay note for the RCHP.
“We issued a short-term, three-year note so we could go ahead and start the allied health building. We went to local banks, got a short-term, interest-only note so we could get the money and start construction because we wanted to have it operational in August 2008,” Demming said. “It’s like a construction draw. When you get 90 percent complete, you’re allowed to make one more draw, and then you start the principal payback, and that might be two years down the road.
“You only owe what you draw, and we’ll probably only draw $1 million by the end of this fiscal year.”
All of the recent bonds were issued during the current fiscal year. As of June 30, 2008, the city’s general fund debt will be $80.7 million, up from last year’s $69.8 million of general fund debt. Demming said the city paid around $10 million toward the general fund debt and would pay a similar amount next fiscal year. In 2010, about $3 million rolls off the city’s general fund debt payment amount.
During the process of preparing for the bond sale, Kingsport requested Moody’s rate the bonds, for which the city received an A1 rating. Moody’s cited the city’s growth in its tax base, solid financial operations and manageable debt burden as reasons for the A1 rating, Demming said.
At a recent BMA work session, city leaders discussed the pros and cons and possibility of Kingsport obtaining a rating from a second credit rating agency. Demming said there are three major bond rating firms — Moody’s, Standard & Poor’s and Fitch Ratings.
“There is a cost to it, but the benefit is there are funds out there that cannot buy our bonds on the market because they have criteria where they have to have more than one rating,” Demming said. “The discussion is going to be, is it in our best interest to have two ratings?
“We’ve not had a problem getting bidders on (the bonds). If for some reason we were excluding some, then we would pick those up by having additional ratings.”
Demming said the city’s audit committee is expected to meet within the next two months to discuss the possibility of Kingsport obtaining another credit rating.