Covington is considering paying off $1.14 million of its municipal debt early.
The Covington Board of Commissioners will vote next week on whether to pay off $1.14 million in bonds the city took out in 2016. That amount is the remainder of a bonding package originally worth $9.185 million, not including interest. Paying back the loan early will prevent additional interest accrual on the bonds’ remaining balance.
An affirming vote will enable the city to use a combination of remaining money in the city’s dedicated bond payment fund and money from the city’s general fund to pay back the package’s remaining principal and interest without incurring extra fees for early repayment. On Tuesday, the board put the repayment on the consent agenda for their meeting next week, meaning it will likely pass.
Once complete, said Interim Finance Director Jerome Heist, it “will take about 30 (to) 45 days to inform the bondholders.” The commissioners did not ask Heist any follow-up questions or discuss the repayment at Tuesday’s meeting.
The bonds to be paid off are general obligation refunding bonds. These bonds are a form of municipal debt cities take out to refinance earlier debt packages. Essentially, it’s new debt to pay back old debt. A city may do this to improve its cash flow, freeing up more money for operations, or to get a better interest rate. City documents indicate that Covington was originally set to pay off the 2016 bonds at predetermined payment intervals between 2027 and 2031.
A spokesperson from the city informed LINK nky that the bonds were taken out to cover three earlier debt packages, taken out in 2002, 2009 and 2010, respectively.
The first was a package the city took out in 2002 to finance the construction of the Bill Cappel Youth Sports Complex and Eva G. Farris Complex, two youth sports facilities in the city. That debt package was issued by the Kentucky League of Cities, which issues bonds to help cities bankroll capital projects.
The second was a 2009 lease-to-purchase loan for the building at 501 Main Street, which now contains a restaurant. Branch Banking and Trust Company, which merged with Sun Trust Bank in 2019 to form what is now Truist Bank, issued that debt.
The third package came in 2010 in the form of recovery zone bonds for improvements at the Rivercenter garage and plaza. Recovery zone bonds were a form of debt issued by the federal government during the Obama Administration to help fund economic development.
Those earlier bonding packages had either variable interest rates or were taxable (or both), according to a city spokesperson. The general obligation refunding bond package in 2016 consolidated the package into a single payment schedule with a fixed interest rate. Roughly $14.8 million has been set aside in the city’s debt obligation fund for debt service for this fiscal year, which runs from July 1 to June 30.
