The Covington City Commission heard a proposal for financing the city’s new city hall project on Tuesday. The proposal calls for the issuance of up to $29.2 million in general obligation bonds—$26 million of which is dedicated to the building itself. The rest will go toward capitalized interest and fees.
The commission will perform a first reading of the financing package at their meeting next week on Tuesday, Aug. 13; a second reading and a vote will take place in subsequent weeks.
The new city hall building is slated for construction on Scott Street between Lee’s Famous Chicken and the old site of the Emergency Shelter of Northern Kentucky, near the library. Initial renderings of the plans for the building were presented to the commission in October.
The proposal calls for financing the new city hall with general obligation bonds, which are common forms of municipal debt. These debt instruments will be secured in conjunction with an even broader restructuring of the city’s overall debt load aimed at controlling short-term cash flow.
General obligation bonds are one of several debt measures cities use to back capital projects. Newport, for instance, sought general bond funding early this year for a new parking garage. What distinguishes general obligation bonds from other debt instruments, such as industrial revenue bonds, is that they are backed by the city itself.
Here’s how they work:
The city solicits investors to buy bonds, in this case up to $29.2 million worth, which will provide the city with cash to finance the building’s construction. The city is then fully on the hook to pay back the principal of that debt plus any interest. In a scenario where the project fails to generate revenue for the repayments, the city would have to make up the money some other way. In some cases, this could entail raising taxes.
The bonds for the city hall would be on a 30-year term, meaning the city would be scheduled to pay off the bonds’ principal and interest by 2054 if approved. City documents project the total payoff amount for the bonds, including interest, to be about $52.6 million.
The restructuring of the city’s remaining debt, on the other hand, is a way of controlling the amount of cash the city has to pay toward its debt every year. It’s a trade-off–refinancing can increase cash flow, but it extends the life of the debt. The ordinance proposal that came before the commission includes both the new bonds and the debt restructure.
The city’s current debt load puts total debt payments at about $73 million through 2037. This figure does not include so-called self-supporting debt, which is offset by forms of city income and usually not considered in payoff estimates. The proposed restructure, along with the $26 million in bond principal for city hall, would add about $107 million to that payment total and extend the payments through 2056.
It would also reduce the amount in yearly required payments for some of the city’s past debt. Most notably, it would redistribute a lump sum of $29.5 million coming due in 2026.
The debt restructure is a way of dealing with the city’s shortfall in the short term, but in the long run, city staff and elected officials have placed their hopes in the city’s economic development, especially at the former IRS site, as a means of solving the city’s financial woes.
Read a chart outlining the complete proposed debt restructuring and new bond package below. You can also read a full text of the proposed ordinance here.
The commission will perform a first reading of the ordinance at their meeting next week on Tuesday, Aug. 13, starting at 6 p.m. at Covington City Hall on Pike Street.