Rising interest rates postpone the city’s borrowing plans
Evanston’s Finance and Budget Committee on Tuesday night agreed to review short-term borrowing opportunities in the face of rising interest rates on long-term bonds.
Speer Financial adviser Raphaliata McKenzie told the committee that interest rates on 20-year general-purpose notes are now at 4% or more.
That’s about twice as much as was available for bonds issued last year.
The Federal Reserve’s recent moves to raise interest rates to combat inflation are being blamed for the rise in interest rates.
Committee chairman David Livingston said, “This is a difficult time to issue bonds,” adding that the city needed to look at alternatives that would minimize its bond obligations.
McKenzie said taking out a line of credit from a local bank is “one of the best options for the city at this point.” She said banks recently charged just over 2% interest on such loans.
These loans have variable interest rates that could increase over time, but Livingston said that even if interest rates had increased, the city would have made some savings immediately and could look to other financing options later.
Committee member Leslie McMillan suggested the city should go to banks where it has deposits “and start squeezing them” to offer a cheap interest rate in exchange for continuing to hold the city’s funds.
Evanston’s chief financial officer, Hitesh Desai, said the city took out a $15 million line of credit with the Byline Bank early in the pandemic, when the city’s tax revenues seemed very uncertain, but closed it after it haven’t used it for 18 months.
The committee also discussed possible options to reduce the amount of money the city is holding in reserve and to explore whether capital products could be scaled back or spread over time or funded from other sources to minimize borrowing needs this year.
City officials had earlier this year forecast that it would issue about $16 million worth of bonds for investment projects, but Desai says the loan amount could be reduced to about $10 million by using fund reserves and others adjustments would be made.
Further discussion of these options is expected at the next Committee meeting.
Whatever the committee ultimately recommends, it’s up to the city council to decide which funding strategies to approve.