CAPE MAY — Chief Financial Officer Kevin Hanie provided City Council an overview of the city’s interest-bearing accounts Sept. 3.
“All of our funds are currently held with Sturdy (Savings) Bank, and as of July 31 this year, we have a total of $33 million on deposit,” Hanie said, adding that across 17 accounts, there is $670,000 of earned interest.
State earned interest is up compared to 2023 but down compared to 2024. Hanie said there was a major rate renegotiation in early 2023, which resulted in minor fluctuations. The 2024 total interest came to $1.1 million.
“While we are year-to-date below 2024, we do have a large influx of cash coming in because of a recent bond sale, so that should bump us up close to that year total,” Hanie said. “On Wednesday last week, the city held a bond sale to permanently finance $20 million of previously authorized debt.”
The bonds were issued for 15 years. The city received a premium of $900,000 from the bond sale, which was used to reduce the outstanding debt. Hanie said the sale reduced the annual debt service payments.
“It was issued at an interest rate of 3.53 percent, so annual debt service related to this issuance will be about $1.7 (million) to $1.8 million per year through the term of the bond, 2040,” Hanie said.
Additionally, Hanie said there was a note sale to roll a $7 million water/sewer note issued last year for another year. The rate came in at 2.56 percent.
“At the time of the sale, our bond council and our municipal advisers noted that this is a very successful sale,” he said. “Our bond rating of AA and our note rating of SP1+ helped us to secure competitive interest rates.”
Hanie said the rate on the note of 2.56 percent was one of the first times they’ve seen a rate below 2.6 percent in recent years.
Council voted to pass a resolution approving the investment of funds in the New Jersey Asset & Rebate Management Program (NJ/ARM).
“The NJ/ARM is an investment trust specifically designed for municipalities and school districts to invest surplus funds and bond proceeds,” Hanie said. “All of the funds are invested in a portfolio of short-term U.S. Treasuries and federal agency notes, and are available for same-day deposits and withdrawals.”
Hanie said NJ/ARM tracks arbitrage on bond interest, which will be helpful for the city. He noted the current NJ/ARM interest rate is 4.21 percent, which is stronger than the city is currently earning on the rest of its deposited funds.
“If the resolution were approved and the investment were to go through, it should net us about $50,000 in additional interest just over the remaining four months of the year,” Hanie said. “The goal of the NJ/ARM program are safety of principal and liquidity of local government funds entrusted to it, as well as earning a competitive yield.”
If the city invests in NJ/ARM, Hanie said it should exceed last year’s earned interest.
During public comment, resident Jules Rauch noted that it was interesting that the city was earning interest on $20 million but taxpayers would ultimately pay it back.
“If you think of it in terms of pots of money, we’re getting a pot full of money with it, which is interest and that enables the city to go and spend whatever that money, that pot generates,” Rauch said. “On the other hand, we’ve got $20 million debt that we need to service and that’s being paid for by the taxpayer.”
Rauch added that he felt there was an inequity in the situation, with the taxpayer paying the debt and the administration having a revenue source that was not anticipated.
“They have a pot full of money now that’s coming from the earned interest, which, frankly, is great, but understand it isn’t free,” he said. “I believe there should be some kind of a formula whereby the interest that is earned on both the sweep account and the state fund money is used to repay or be applied in some form to the repayment of the $20 million debt.”Cap
By RACHEL SHUBIN/Special to the Star and Wave
