News Column

Newport News considers buying out Apprentice School garage lease

June 24, 2014

By Dave Ress, Daily Press (Newport News, Va.)



June 24--NEWPORT NEWS -- Low interest rates, a boost to an already good credit rating and an option to buy out a lease are adding up to a chance for Newport News to save hundreds of thousands of dollars of taxpayer funds a year.

City Manager James M. Bourey is proposing that the city buy the 382-space parking garage built as part of the new Apprentice School facility downtown, and will ask the City Council to vote on the matter Tuesday.

The price tag, $12.7 million, would make the city the owner of the garage. The city is currently committed to make $20.5 million in lease payments to developer Armada Hoffler over the next 13 years.

Newport News would borrow the money for the purchase, and has arranged a 13-year loan at a 3.8 percent interest rate.

"We got a great deal, with 3.8 percent on a taxable loan -- we got a little over 3 percent on our last tax-exempt," Bourey said. "That's a smoking deal,"

The city sold $45 million of tax-exempt bonds in April, under which it pays a 3.05 percent interest rate. Bankers and bond buyers usually accept lower interest rates on tax-exempt debt than for loans or bonds on which they have to pay taxes..

The city's original plan had been to lease the garage from Armada Hoffler, paying $1.5 million a year for five years and then $1.6 million a year for another 10 years. It has made two $1.5 million payments for the garage.

The deal included an option to buy.

"We saw an opportunity to save some money," Bourey said, with Standard and Poor's upgrade in the city's credit rating earlier this year, to AA-plus -- its second highest grade -- from AA.

And the window to do that might not be open that much longer, given the likelihood that interest rates will rise in coming months now that the Federal Reserve isn't pushing as aggressively to keep them low.

Five lenders bid for the city's business, and TownBank was the winner with a 3.8 percent, 13-year loan, with a $63,500 commitment fee.

Also on Tuesday, the council will:

-- Consider a new sign ordinance that would bar continuously moving images on electronic signs, and limit the height of new commercial signs. Billboards displaying video are a growing safety hazard because they distract drivers, while the new height limit is intended to keep signs below the usual canopy of trees in leaf -- the city has had a chronic problem with people cutting down its trees when they block signs, Bourey said.

-- Consider appropriating another $1.2 million for the new Fort Eustis Boulevard bridge project, in order to keep it on track. Bourey said the city expects to recover about $800,000 of the additional cost, which he described as the result of design errors and mistakes in construction. So far, the city has spent $6.2 million on the project, including $2.7 million provided by the state.

Ress can be reached by phone at 757-247-4535.

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(c)2014 the Daily Press (Newport News, Va.)

Visit the Daily Press (Newport News, Va.) at www.dailypress.com

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Source: Daily Press (Newport News, VA)


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