OUR VIEWS: Feds saved city $3 million in loan interest

Timing is everything, and the Olympia City Council got extremely lucky with the financing of the new city hall project.

The council recently held a special meeting to adopt an ordinance to borrow $35 million to finance the four-story city hall under construction on Fourth Avenue. It’s one of the biggest loans in city history and fortuitously comes at a time when the federal government is offering special stimulus package financing.

The federal bond program didn’t even exist until April, long after the City Council voted to proceed with construction of a new city hall. Under the federal program, the city will receive 35 percent rebates twice a year on bond interest payments. The special deal, part of the $787 billion federal stimulus package, is expected to save the city $3 million over the 30-year life of the bonds.

When the city saves, taxpayers save. And that’s a good thing.

The council previously selected the old Safeway site at Fourth Avenue and Cherry Street for the new city hall. The council awarded a construction contract to Hoffman/Belay then got to work doing the environmental clean up.

Much of downtown Olympia is on fill, so the first step was to drive pilings. Now the structure of the building is starting to take shape. City officials then turned their attention to the financing package.

The first ordinance adopted by the council last week authorizes the issuance of debt and accepts bids for bonds. A second ordinance puts the bond proceeds, Department of Ecology site clean-up grants and other sources of revenue into a single fund to pay for the City Hall project.

Jane Kirkemo, the city’s finance director, explained to the council the unique opportunity afforded the city under the stimulus package approved by Congress and signed into law on Feb. 17 by President Barack Obama.

Kirkemo said last fall that tax exempt debt was not very marketable. Because of historically low interest rates, there was a high supply of bonds available, with little demand to purchase. In an effort to stimulate demand, the federal government authorized Build America Bonds in April. Jurisdictions such as Olympia have until Dec. 31, 2010, to take advantage of the taxable bonds. The attractive element is the fact that the feds refund 35 percent of the interest to the issuer twice a year.

So that’s the route the city chose — a negotiated bond sale. Generally the city issues debt through the competitive bid process, but the Build America Bonds program was so attractive, the city diverted from normal procedures. The City Council had reserved the right to back away from the proposal and go with regular general obligation tax exempt bonds, but that did not prove necessary.

Kirkemo said she thinks Olympia is the first city in the state to use the federal Build America Bonds program. She said the University of Washington issued $145 million last month and that nationally, states and universities have been the early participants in the stimulus rebate program. The state of California issued $5.2 billion and the New Jersey turnpike authority issued $1.4 billion, according to Kirkemo.

Total cost of the Olympia City Hall project is $35.6 million with $35 million in borrowing and $600,000 from existing funds. The $3 million savings will help the city cover environmental cleanup costs on the property that exceeded initial estimates.

The new building will have 89,000 square feet of space and consolidate most city departments, which have expanded to 17 buildings. The current 1960s-era City Hall complex, at 900 Plum St. S.E., will continue to be used for city courtrelated activities.

While city officials have talked about a new city hall for 20 years, it turns out the timing of construction could not have been better. Saving taxpayers $3 million in finance charges over the next 30 years is nothing to sneeze at.