SCH, Park Lane to take advantage of low interest rates

By Rod Haxton, editor

It will likely be late February before Scott County Hospital has a “guaranteed maximum price” on construction of their new facility.

A similar cost figure for Park Lane Nursing Home’s renovation/addition won’t be in hand until later this spring.

As for groundbreaking on either project, that may be a few more months down the road.

While hospital and nursing home officials are being patient about the design and bidding process, they are a little more anxious when it comes to issuing bonds. They like rates where they are right now and worry that delaying the process could result in a higher interest rate - and much higher cost to the taxpayers.

As it now stands, it’s possible the interest payments on bonds for the hospital could be $3 million to $4 million less than had originally been budgeted when the $24 million question was first put to voters.

That kind of savings has caught the attention of Scott County commissioners who initially expressed reservations about issuing bonds - and paying interest - before actual work has begun and bills start coming in. Commissioner Jack Frick doubted there would be much fluctuation in interest rates over the next few months.

SCH Administrator Mark Burnett countered that the chances of interest rates rising would appear to be much greater than the chance of them dropping.

When the $24 million bond issue was presented to voters, it was based on a projected interest rate of 5.25 percent. The current interest rate is slightly higher than 4.5 percent.

“I would feel more comfortable if the county would proceed with the sale of the bonds,” urged Burnett. “A slight uptick of just 1/10 of a percent would cost us a considerable amount of money.”

Even a 1/10 percent jump in interest rates would amount to about $600,000 in additional expense.

Interest on a 30-year bond issue at 5.25 percent is $24.87 million. Even at 4.75 percent interest, the savings over the 30-year payout would be $2.8 million.

Of course, issuing the bonds before work actually begins will mean that the county is paying interest on money it’s not using. A small amount of that could be recovered by putting it into an interest-bearing savings account.

That’s a price which commissioners are willing to pay when weighed against the risk of higher interest rates.

Park Lane Bonds

While the savings wouldn’t be near as significant, similar advantages also exist for issuing bonds early on the Park Lane project.

As with the hospital, the nursing home bond issue payments were calculated at 5.25 percent. If they can lock interest rates at 4.75 percent, the overall savings would amount to $241,440, according to Park Lane Administrator Jerry Korbe.

For each 1/10 of a percent reduction in rates below 5.25 percent, the taxpayers would save about $53,000.

“It’s conceivable that we could lock in interest rates on a 15-year bond issue at 4.5 percent,” said Korbe.

The process of issuing the bonds is expected to be completed in late February or early March.