Politics & Government

Clause and Effect: Shrewd Provision Lets Tinley Refinance Bonds, Save $600K

Thanks to the sequestration, a federal shortfall in a 2010 bond program gives the village a chance to refinance at a lower interest rates. Find out the details and what the bottom line means to Tinley Park's finances.

Planning for a worst-case scenario is usually an exercise in simple survival, with the best outcome resulting in keeping a bad situation from becoming horrendous. Rarely is it a chance to create better circumstances.

But that's what the Village of Tinley Park has been able to do thanks to a little-used clause in a 2010 federal bond agreement.

How did this work out in the village's favor? Patch breaks it down.

What Makes the 2010 Bond Agreement So Special?


The $14.11 million in bonds were issued through the federal Build America Bond program and went toward the completion of the Tinley Park Convention Center, construction on the 80th Avenue Metra station and water and sewer projects, said Village Manager Scott Niehaus.

Through the BAB program, the U.S. government agreed to subsidize 35 percent of the periodic interest over the 20-year life of the bonds. But Tinley Park included a provision that would let the village refinance those bonds if the government didn't cover the full reimbursement. It's a clause that only five other Illinois communities included in similar agreements at the time, Niehaus said.

Fast forward two years, and the government has told the village it will be shorting the June 1 interest subsidy by about 8 percent—or about $10,000—thanks to the sequestration. That reduction means the refinance provision goes into effect at a time when interest rates are lower than they were in 2010, Niehaus said.

"Were it not for the sequestration, we'd be locked in," he said.

How Does the Village Refinance?


In order to see any savings, the village must call the 2010 series bonds and issue a new series of refunding bonds set at the lower interest rate.

Niehaus is quick to point out, however, that the new bond series doesn't create additional funds.

"This is not new money. It's a refinancing," he said. "Basically, it's like going in to get a new mortgage on a home."

What's the Bottom Line for the Village?


The savings in interest paid through 2030 is estimated to be about $600,000, according to village documents that were presented at the May 21 meeting of the Finance and Economic Development Committee.

"I don't think there's any downside or any reason not to do this," said Trustee Dave Seaman, who also heads the finance committee.

Another factor that could bring added savings is the village's credit rating. In a review spurred by the refinancing, Standard and Poor's affirmed Tinley Park's AA+ rating and gave it a stable outlook, according to a village press release. The AA+ rating, the agency's second-highest rating, indicates that a municipality has a "[v]ery strong capacity to meet financial commitments," according to Standard and Poor's website.

This rating puts Tinley Park in an elite group of state communities and in the top 5 percent nationally of local governments with comparable ratings, the village release stated.

Besides the fiscal savings, the refinancing also protects the village from being shorted by the government when it comes to interest reimbursements.

What's Next?


The Village Board will vote to approve issuing a series of refunding bonds not to exceed $13.9 million at its June 4 meeting.

If approved, the bonds then would go to market in mid- to late June, according to village documents.


Get more local news delivered straight to your inbox. Sign up for free Patch newsletters and alerts.

We’ve removed the ability to reply as we work to make improvements. Learn more here