Evanston’s Finance and Budget Committee agreed Tuesday evening to explore short-term borrowing options in the face of rising interest rates for long-term bonds.
Consultant Raphaliata McKenzie from Speer Financial told the committee that interest rates on 20-year general obligation bonds now are running at 4% or more.
That’s roughly double the rate that was available for bonds issued as recently as last year.
Recent moves by the Federal Reserve to raise interest rates to combat inflation are blamed for the increase in rates.
Committee Chair David Livingston said, “This is a difficult time to issue bonds,” adding that the city needed to look at alternatives that would minimize its bond obligations.
McKenzie said taking out a line of credit with a local bank “is one of the best options for the city at this time.” She said the banks recently were charging a little over 2% interest on such loans.
Those loans carry variable interest rates, which could rise over time, but Livingston said that even if the rates did go up, the city would have achieved some immediate savings and could look for other financing options down the road.
Committee member Leslie McMillan suggested the city should go to banks where it has deposits “and start squeezing them” to offer a favorable rate in return for continuing to hold the city’s funds.
Evanston’s chief financial officer, Hitesh Desai, said the city took out a $15 million line of credit with Byline Bank at the start of the pandemic, when city tax receipts seemed very uncertain, but closed it out after not using it for 18 months.
The committee also discussed potential options for reducing the amount of money the city holds in reserve and to explore whether capital products could be scaled back or spread out over time or funded from other sources to minimize the need for borrowing this year.
City officials had projected at the start of this year that they would issue about $16 million in bonds for capital projects, but Desai says that borrowing amount could be reduced to around $10 million by using fund reserves and making other adjustments.
Further discussion of those options is expected at the committee’s next meeting.
Whatever the committee ultimately recommends, it will be up to the City Council to decide what financing strategies to approve.