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Shelbyville City Council is planning to hear a resolution to join the Kentucky League of Cities' new Interlocal Finance Corporation at Thursday’s meeting.
But Mayor Tom Hardesty said on Tuesday that the resolution may be taken off the agenda.
“It’s a pretty complex document, and the council members and I still have a few questions on it,” he said. “I want to assure the council and the city that it is in our best interest. So we may take it off this [Thursday’s] agenda.”
The agreement would bring KLC’s help in issuing bonds.
In the past, KLC has been able to help cities by issuing bond pools that have been backed by a letter of credit.
However, in a presentation at the council meeting April 15, KLC Director of Financial Services, Garrett Drakeford explained that letters of credit are drying up during these difficult financial times. He said banks are no longer issuing letters of credit, but KLC found the Interlocal agreement as a way around that.
In essence, Drakeford said the KLC could help a group of cities issue bonds together, ensuring a better rate for the larger sum. Those cities would then only be held responsible for their own sums, not any of the other city’s bonds.
For example, if Shelbyville had a $2 million bond in a $30 million pool, the city would only be responsible for the $2 million. In the past, the letter of credit ensured that bond buyers would be paid, leaving the bank to go after the city for the remaining amount.
Now, the buyers would be responsible for going after a defaulting city.
"It's not a new relationship or a new way to do things," Drakeford told the council. "It's very similar to our old bond issues, but without a letter of credit behind us, this is about the only way to do it. KACo [the Kentucky Association of Counties] is doing something just like this."
The city could issue bonds on its own, but it would be unlikely it would get the same rating as a group.
By joining this corporation, the city is not forced to issue a bond or back any other city’s bonds, but if the city needs to issue a bond through a KLC pool in the future, it must be a member of the corporation. There is no separate fee to join.
Also at the meeting: • The council will hear a May 8 Earth Day Proclamation
• Hear second readings on ordinances amending five employment positions.