The Carroll County Public Service Authority (PSA) could potentially save between $686,805 and almost $1.1 million by refinancing existing loans from federal lending agency Rural Development.

PSA members learned of possible savings during its July 14 meeting after hearing the results of a Request for Proposals by Davenport Public Finance. On behalf of the authority, Davenport distributed and received bids from financial institutions interested in providing the PSA with the necessary funding required to refinance the Authority’s existing Rural Development loans of approximately $4.3 million. Having distributed the RFP to 17 banking institutions, three firm bids were returned from interested parties willing to fund some or all of the requested amounts.

It was noted that the PSA currently pays 4.5 percent interest on the existing loans. One of the three bids, from National Bank, would provide the PSA with a five-year fixed rate of 3.72 percent. Additionally, National Bank provided a “ceiling” rate of 4.35 percent and a “floor” rate of 3.3 percent. Both rates are guaranteed. Even at the maximum ceiling rate, it would still be lower than the PSA’s current rate of 4.5 percent.

The lowest level of savings would occur if the 3.72 percent fixed rate resets to 4.35 percent after five years, for a net savings of $686,805. If the 3.72 percent fixed rate were to reset at the same amount, the PSA would stand to save $932,741. The best-case scenario would be if the fixed rate resets to 3.3 percent after five years, which would result in a net savings of $1,092,952.

Additionally, by shortening the life of the debt from 32 years to 25 years in each of those three scenarios, the refunding would allow the PSA to “cut-out” $973,325 in debt service, thereby increasing the Authority’s debt capacity.

Based on those figures, Davenport Public Finance recommended National Bank’s bid for refunding opportunities. In a handout issued to the board, Davenport noted National Bank provided the lowest interest rate of 3.72 percent with the ability to amortize the refinancing over 25 years. The bank also provided the most favorable terms and conditions as summarized below:

— The Net Revenues of the System are the only security needed.

— Prepayment may occur at any time without penalty; No “Lock-out” period.

— A “Ceiling” interest rate has been set at 4.35 percent; therefore the risk of negating the Authority’s savings through this refinancing is removed.

— Closing can occur on or before Aug. 15, 2008.

— No Bank Closing Costs are anticipated.

— No annual fees will be assessed.

PSA Chairman David Hutchins wondered about the costs of the refinance. According to charts presented at the meeting, the cost of refinancing would be $2,338 a year from 2010 to 2013. The cost could exceed $16,000 a year under the worst-case scenario from 2014 to 2028, however.

The PSA ultimately decided to have the group do more research and come back next month to update the authority. Hutchins said it sounds like a good plan, but more time is needed to see how and if it will work, especially considering the authority would be paying more per month in the beginning. After all, he said saving money through refinancing could help the authority invest money in infrastructure projects, but that might be a moot point if the benefits weren’t reaped until many years down the road.

“I think it sounds like a good deal, but we are going to have to come up with roughly $2,000 to $2,800 the first number a years more than what we are now. That’s $200 or $300 a month, which doesn’t sound like much. But when you get up to the next five years, you are up to about $16,000 a year (in the worst-case scenario), which is roughly $1,400 a month,” Hutchins said. “I am all for saving money and cutting the term down. I just want to be sure we are getting the best return on what we are spending. I am not at all opposed to doing it if it makes good fiscal sense to our county.”

Hutchins said the best scenario would be a case where the authority didn’t have to pay any extra per month in addition to lowered rates.

“That would be a tremendous deal. But I think we are going to have to have him come back and do more research and we are going to have to make a decision and see if we can afford it,” Hutchins said. “l am all for saving the money, but I am not just going to jump out there. Let’s be sure we are where we think we are before we do that.”