LARGO — The City Commission moved one step closer to borrowing $20 million for the new Highland Recreation Complex last week, and commissioners can finalize the loan with another vote Tuesday night.
While the original plan was to take out $10 million this month and the other $10 million in October 2012, uncertainty in the banking industry forced city finance director Kim Adams to come up with another plan.
Adams explained the dilemma to the City Commission Tuesday, just before commissioners voted unanimously to borrow from JPMorgan Chase, the lender that submitted the lowest interest rates out of eight bids the city received.
Largo wanted the first $10 million loan to get started on construction, and the second $10 million in October 2012 to finish the project. But banks, which have let Largo lock in interest rates in the past, would not let the city lock in a rate for the October loan.
So Adams came up with an alternative plan — Largo will take $10 million out this month and another $10 million in January, even though it probably won't need that money until October.
Provided the City Commission approves the final loan documents Tuesday, the city will borrow the first $10 million at 1.72 percent interest and the second $10 million at 1.74 percent. Largo would pay about $1.25 million in interest on the loans, which are scheduled to be paid back by January 2020.
So what will Largo do with an extra $10 million for 10 months? The worst-case scenario, Adams said, is depositing it in the city's checking account, which earns 0.4 percent interest.
If Adams can find another stable investment that guarantees a better return by October, he'll consider it. Regardless, he says it's worth it for the city to take the loan out early, even if it is paying interest on money it doesn't really need for 10 months.
"Over an eight-year loan, it's better to pay a lower interest rate sooner, than it is to pay a higher interest rate later," Adams said.
The bulk of the money — $17 million — will be used for the new Highland Recreation Complex, which is slated to be open by mid 2013. City leaders have been discussing replacing the old center, opened in 1972, for years. Despite a down economy, Mayor Pat Gerard says now is the time for a new recreation complex.
"The building we have right now is pretty inadequate," Gerard said. "Part of the reason we are building now is because it will be much cheaper than it would be when the economy recovers."
The loans will be repaid with future Penny for Pinellas sales tax revenue.
The remaining $3 million in loans will be used to pay off a wastewater loan that was taken out in 2001 at a higher interest rate. Adams estimates the refinancing move will save the city about $1 million.
Commissioner Curtis Holmes voted against the Highland Recreation Complex spending every step of the way until last Tuesday.
"I'm still against it, but it's a moot point," Holmes said, referring to the fact that the rest of the commission is in favor of borrowing for the new complex.
Holmes would prefer the city save Penny for Pinellas revenue for a few years, rather than borrow against future earnings. The rest of the commission has been convinced by staff projections that show sales tax earnings covering the cost of the loan, but Holmes remains skeptical.
"We're making a bet that the Penny for Pinellas is going to maintain itself," he said. "That's going to be a bad bet."
Will Hobson can be reached at (727) 445-4167 or firstname.lastname@example.org.