After hearing from bond experts that cities are seen as more secure than redevelopment agencies, Centerville City has decided to be the agency that will go out and seek bonds for the Davis Arts Center rather than the Centerville RDA.
Though the funding for the bonds would still come from previously established sources including the RDA and RAP tax revenue, the move has the potential to save nearly $980,000 in interest fees.
“The national perception of redevelopment agencies isn’t as strong as it is for cities,” said Centerville City Financial Director Blaine Lutz. “It’s not really a fair perception, but that doesn’t mean it isn’t there. And if it’s an RDA going for the bond, you won’t get the best interest rate available.”
The interest ratings come from the grade that an agency receives on the bond market. The higher the rating, the more flexibility that the people issuing the bonds are willing to offer.
“It was just really shocking. Even a few months ago, it just wouldn’t have made that much of a difference,” said Lutz. “Now, though, the difference is just phenomenal. It’s all about the appearance of security.”
Though the council voted earlier in March to use the city’s sales tax as collateral for the bonds, the switch means that the sales tax now becomes the official primary source for paying back the bonds. Still, city officials say that this will remain only a technicality and that they don’t plan to use any sales tax money to fund the arts center.
“From a legal standpoint the sales tax takes the first position, but as a city we’ll still be looking at all the other revenues,” said Lutz. The county did something similar when they went out to bond for the Davis Conference Center. “If the difference had been small, we wouldn’t have even done it.”
Still, the sales tax money would be used if RAP tax or other revenues prove to be insufficient, prompting those involved in the project to assure residents that those working on the arts center project had taken measures to reduce the likelihood of that ever happening.
“The assumptions on these revenues have been fairly conservative,” said council member Justin Allen. Potential RAP tax revenues were artificially dropped for the next several years during the figuring of revenue amounts. “The city and the RDA have been very confident that they’ll be met.”
The council hasn’t actually gone out to seek any of the bonds for the arts center, so there are currently no hard numbers on how much money the arts center might save. If the savings aren’t sufficient, the council can still choose whether or not to accept the rates on a given bond. The group has also not officially bid out on the arts center, meaning that the $14.3 million price tag currently being used may end up dropping slightly.