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Trafford Council approves $2.75-million bond issue

| Friday, Sept. 28, 2012, 11:57 a.m.

Trafford Council is borrowing $2.75 million to restructure its debt and reimburse its general fund for overspending on the borough public safety building.

Council voted 5-1 at a special meeting on Sept. 27 to approve the issuance of a 30-year general-obligation bond. Rich Laird, John Daykon, Vicki Megon, Henry Schultz and Casey Shoub voted in favor, while Frank Bruno, who participated by phone, opposed the borrowing. Councilwoman Rita Windsor was absent.

Council members have said the bond is necessary because the borough might end up spending $600,000 more than the $2-million loan Trafford received for the building project. The borough general fund could run out of money this month, they said.

“Given the situation we're in, I didn't think we had the choice,” Laird said. “We need to come up with money to maintain the borough, and unless we hit the lottery, there was no way of getting it.”

The bond will be used to pay off several expenses related to the building and some other borough debts, as well as replenish the general fund until the end of the year.

The breakdown of the bond includes:

• $2 million to pay off the construction loan from S&T Bank.

• $382,500 to reimburse the borough's general budget fund for some building expenses beyond the $2 million loan;

• $200,000 for the construction of Cavitt Avenue parking lots for the community room and the paving of the parking lot for the public works building;

• $75,000 to John Pultan for property purchases for the Cavitt Avenue parking;

• $50,000 for the purchase of Cavitt Avenue parking lot near the Fifth Street intersection.

• $50,000 for the completion of the community room kitchen.

More than $84,000 targeted for the general fund will go toward reimbursing line items that were drained to help pay for the new building. Of that, $52,600 will be repaid to the sewage fund.

Even with the bond, council likely will consider seeking a short-term tax-anticipation loan later this year to help its cash flow early in 2013 until residents begin paying their taxes in the spring, said Daykon, the finance chairman.

“We should be on solid footing through the end of the year,” Daykon said in an email. “The important thing to keep in mind is that with the bond issue, we will no longer have monthly loan payments. We will pay the bond twice a year: one payment of just interest and one payment of interest and principal.”

When the bond closing happens in late October or early November, the borough will end up with an interest rate around 3 percent, Daykon said.

That will replace the 20-year, adjustable-rate building loan the borough received from S&T. Under that arrangement, the borough was paying 3.24-percent interest in the first five years, but the rate could have jumped as high as 6.56 percent for later five-year periods in the loan.

Bruno, whom Laird removed as finance chairman in March, said he is “totally against” the bond. He helped to shepherd the borough through a financial recovery plan eliminated nearly $1 million in debt.

“I'm not saying it won't work; it's not my choice,” Bruno said. “I think it's risky, and it's not necessary.”

Bruno has said the borough could borrow from several budgeted line items and outside funds — including sewage — to balance the general fund.

Council has countered that its auditors discourage those types of transfers, especially from the sewage fund. State law also prohibits that practice.

Section 2043 of the Borough Code states that all money received from sewer charges shall be deposited in a reserve fund and used only for the operation, maintenance and replacement of sewer facilities.

“As we tell people, the Borough Code is not a recommendation; it's the law,” said Ed Troxell, director of government affairs for the Pennsylvania State Association of Boroughs.

Chris Foreman is a staff writer for Trib Total Media. He can be reached at 412-856-7400 ext. 8671 or cforeman@tribweb.com.

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