Palmview plans to borrow $2.1 million to pay off old loans
This article originally appeared in the Friday July 5, 2019 issue of the Progress Times.
Palmview plans to borrow about $2.1 million to pay off several old, high-interest loans.
During a meeting on June 25, the Palmview City Council hired a financial adviser and authorized Mayor Rick Villarreal to make key decisions.
“We’re looking at getting a good interest rate, thank God,” Villarreal said.
Palmview hired Philadelphia-based PFM Financial Advisors, a well-respected financial firm that worked with the Agua Special Utility District on a similar project, to assist the city.
PFM will work with Muñoz and Frankel, the city’s bond attorneys, on the transaction.
Palmview wants to borrow about $2.1 million, which will allow the city to pay off three old, relatively high-interest loans from Lone Star National Bank.
In June 2004, the city borrowed nearly $1.4 million from Lone Star National Bank at 5.25% interest, according to information provided by City Attorney Eric Flores.
Palmview pays nearly $122,000 annually but still owes the bank nearly $820,000.
The city asked Lone Star National Bank for another loan in November 2008, when Palmview borrowed nearly $1.4 million at 7.25% interest. Palmview pays about $125,000 annually but still owes the bank about $756,000.
Palmview promised to pay back the loans by Oct. 1, 2028.
The city borrowed another $650,000 from Lone Star National Bank in February 2014. That loan came with 5.5% interest.
Palmview pays nearly $65,000 annually and still owes $534,000. It must pay off the loan by 2030.
Taken together, the three loans saddled Palmview with an annual debt payment of about $312,000.
Palmview had few options when the city borrowed money from Lone Star National Bank. Without a credit rating, Palmview couldn’t issue bonds. The city also had lackluster audits, which made lenders reluctant to hand over money.
When the city needed to buy something that required a credit card, staff charged the expenses on a card that belonged to former Mayor Jorge Garcia. The workaround sparked rumors about public corruption, which triggered an investigation by the Hidalgo County Sheriff’s Office.
Investigators didn’t file any charges.
Paying off the debt and building a financial cushion will eventually allow Palmview to secure a credit rating.
Villarreal said the city wants to consolidate the loans and secure a much lower interest rate. Initially, the city approached Birmingham, Alabama-based bank BBVA.
“BBVA told us no,” Villarreal said. “So when that happened we went to another lending agency.”
Palmview is hopeful the plan — what bankers call a “refunding” — will save the city a significant amount in interest and potentially reduce the annual debt payment by extending the term of the loan.
“We’re looking at getting a 3.5% or 3.3% interest rate,” Villarreal said.
While the refunding will provide Palmview with financial flexibility, Villarreal said he wants the City Council to focus on paying down the debt before spending money on new projects.
Other cost-saving measures under consideration include cutting back on City Council travel, increasing park fees to match surrounding cities and changing police department policies.
“We’re going to save money,” Villarreal said, adding that Palmview may be able to pay down the debt within three to four years.