LOCKPORT – The city borrowed $4.57 million on a three-month note Tuesday to make sure it doesn’t run out of cash for the rest of this year.
Mayor Anne E. McCaffrey said the amount was similar to the amount the city expects to borrow with a 10-year bond issue authorized by the State Legislature to close its accumulated deficits.
City Treasurer Michael E. White said, “Our ultimate goal by the end of the year is to convert that to bonds.”
The city can’t make that deal until the State Comptroller’s Office authorizes an exact figure, and McCaffrey said that might not happen until December.
The city’s bond-anticipation notes, as Tuesday’s offering is called, come due Jan. 15. The eventual bond issue will pay off the notes.
McCaffrey said the interest rate is an annualized 3.375 percent. Jeffrey R. Smith, president of Municipal Solutions, the city’s Canandaigua-based bonding adviser, said the city will pay $32,997 in interest.
White said the proceeds of the notes were wired to the city and will show up in its accounts today. He said the borrowing covers deficits in all four of the city’s budgetary funds: general, water, sewer and refuse.
Smith said the amount borrowed Tuesday was calculated through a cash-flow analysis by Bonadio & Co., the Williamsville accounting firm hired by the city to work on the 2013 final financial statements, without which the state won’t flash the green light for the bond issue.
“The reason we’re doing it now is the city’s cash flow,” McCaffrey said. “It buys us some time to get the bonds.”
Auditors from the Comptroller’s Office have been in City Hall over the last few days, working with Bonadio.
“Because of the importance of this year’s work, it was important that this be done perfectly and very meticulously,” McCaffrey said.
State auditors blamed inaccurate financial statements for a 2013 city budget that appropriated surplus funds that turned out to be nonexistent, leading to the fiscal crisis that triggered 30 layoffs in the last year, the abolition of the city’s ambulance service and a reduction in minimum staffing levels on police and fire shifts.
The notes were purchased by Oppenheimer & Co., a mutual fund company with a liking for high-yield municipal bonds.
Smith said the interest rate was negotiated with Oppenheimer. “They went out and found three institutional investors and negotiated with them,” he said.
White declined to disclose the names of the institutions that ended up buying the notes from Oppenheimer, but he said they were three of the nation’s 10 largest institutional funds.
“I anticipate that the people who purchased the notes will be very interested in getting their hands on the bonds,” White said.
The amount and interest rate of that bond issue is expected to be close to Tuesday’s short-term borrowing.
Smith said the total cost of legal and consulting services for the notes and the final bond issue are expected to be about $40,000.
The law firm is Orrick, Herrington & Sutcliffe of San Francisco, which has a Manhattan office.
It’s the second consecutive year the financially strapped city has borrowed on short-term notes to get through the year.
Last October, the city borrowed $2.7 million and just paid that back this past Oct. 8, McCaffrey said.