The Town of Yucca Valley is taking out a 20-year $20 million loan at 2.36 percent interest to essentially add onto and redo its civic center.
Utilizing the proceeds from the loan will allow the town to complete a number of projects already underway, such as the construction of the community aquatics/gym facility, the Town Hall consolidation project and Yucca Valley’s senior citizens center modernization project.
According to Town Manager Curtis Yakimow, by borrowing money the town is able “to keep its cash reserves as a buffer for future needs, revenue decreases, or any other unplanned events. This allows multiple generations of users to pay for long term public facilities. The cost of the projects doesn’t only fall on current residents, but future residents as well.”
Moving to secure the loan at the available and locked-in 2.36 percent, Yakimow said, means the city will engage in the “borrowing at historically low rates. While there is an interest cost to borrowing, the town’s reserves can potentially earn more in a period of rising interest rates, thereby offsetting some of the interest cost.”
The terms of the loan and the scheduling of the repayment of the principal and interest together, Yakimow said, will lower the overall cost of borrowing below other types of loan arrangements. Were the town to structure the loan so that the interest paid reflects the payments throughout the life of the loan that are uniform to the principal, the town would be obligated to pay $9.44 million [$20,000,000 X .0236 per year X 20 years], such that the town would have been on the hook for $29.699 million over the 20-year life of the loan [$20,000,000 in principal + $9.44 million in interest + $229,000 in fees].
In actuality, Yakimow said, the town will be set back merely $25.4 million over the life of the loan to pay back the principal and debt service the interest.
“The loan is structured similarly to an amortized mortgage, so the interest paid reduces over time,” Yakimow said. “Under the terms of the agreement, the Town can prepay the loan back at any time if desired, thereby reducing long-term interest costs.”
The town is not absolutely committed to borrowing the full $20 million, Yakimow said, but can use as little or as much of that amount as is deemed necessary.
“The town can borrow up to $20 million under this facility but is not required to take the full amount,” he said. “The final amount borrowed will be determined by the Town’s needs by the end of this calendar year.”
Yakimow said, “Historically, the town council has always taken steps to protect the town’s financial stability and strength and authorized this action only after careful consideration. While we didn’t need to borrow the funds to complete the project, this corporate financing arrangement will provide a lot of flexibility in future budgets, particularly in periods of rising interest rates.”