Between 2008, when the Great Recession began, and 2017, interest rates charged for borrowing money hit historic lows.
Here’s a recent history of average interest rates on 30-year mortgages: At the turn of the century, the average rate was 6.97 percent and in 2010 it stood at 4.69 percent. It hit 3.66 percent in 2012, 3.85 percent in 2015 and 3.65 percent in 2016.
Due to changes in Federal Reserve policy, mortgage rates began to creep up in 2017 and the average rate was 4.10 percent. As of March 21, 2018, the average 30-year fixed mortgage rate was 4.58 percent.
Thanks to the drop in rates, tens of thousands of homeowners were able to leave more money in their pockets by refinancing their mortgage rates and cutting the amount of their monthly payments.
Similarly, thousands of U.S. municipalities, school districts, and public agencies have refinanced long-term bonded debt.
When I was a director of the Nassau Interim Finance Authority, under the leadership of Chairman Ronald Stack, we happily approved the refinancing of nearly $1 billion in debt, saving Nassau taxpayers tens of millions of dollars in interest.
Up until last week, I couldn’t imagine any pol, from any political party, who wouldn’t want to take the relatively straightforward steps necessary to save beleaguered taxpayers a boatload of money.
But, I was shocked, when I learned that in 2017 the Republican-controlled Town of Hempstead failed to approve “advanced” refundings of $110 million in bonded debt with coupon interest rates of 4 percent to 5 percent.
An opportunity was missed to save homeowners over $5 million in lower interest payments and debt service costs.
Worse yet, those savings are lost forever due to a provision in the new federal tax reform bill that took effect on Jan. 1 that prohibits “advance” refunding of tax-exempt municipal debt.
What a disgrace.
As an investment banker for 40years and the co-author of a book titled “The Guidebook to Municipal Bonds,” I cannot conceive a financial advisor to Hempstead that would not have urged the township in late 2017 to race to the market to beat the “advance” refundings deadlines.
Why did former Supervisor Anthony Santino and his cronies miss the boat?
Well, either he was grossly negligent, incapable of understanding the fundamentals of municipal finance, or too busy protecting the jobs of political hacks to focus on the details of governing before being booted out of office on Dec. 31.
And the after-the-fact claim that there was a fear of a creditworthiness drop from the bond rating services in an election year is absurd because the town rating is reviewed every year when it issues capital project bonds. That’s an excuse, but not a good reason, for failure.
There are no plausible excuses for Santino’s failure to act.
When the new town supervisor, Laura Gillen, learned of the inexcusable missed “advance” refunding opportunity, she tried to make the best of a bad job by introducing a resolution to the Republican-controlled town board requesting authority to issue, if warranted, federally-permitted “current” refundings on the $110 million of bonded debt.
Under this financial scenario, bonds eligible for “current” refundings in 2018 and 2019 could save taxpayers as much as $2 million.
Granted it’s not the $5 million that could have been obtained in 2017, but its better than nothing.
Sadly, and inexplicably, Hempstead’s town board turned down Gillen’s proposal.
Instead, they approved dealing with only $31.4 million in bonds that are eligible for “current” refunding in May 2018.
Excuses for not approving the potential refunding of the $110 million were specious, reeking of a partisan desire to rob the new supervisor of a victory, rather than a responsible approach to doing good service of the taxpayers.
One GOP board member groused, “I’m not sure where the administration got their crystal ball to determine the cost benefit of refinancing more than a year from now, but we are basing our votes on actual fact.”
That statement is dumb.
Having advance authority permits Gillen to strike if a “current” refunding makes sense. In periods of interest rate volatility, one can’t afford to spend time going back to the board.
Furthermore, no one is going to refund bonds to pay higher interest rates. That would be like taking a loan from your credit card company at 18 percent to pay your 3 percent mortgage payment.
Republicans should be ashamed for missing “advanced” refunding opportunities in 2017. And their latest attempt to pretend they are now “fiscal watchdogs” is appalling political theater with substantial fiscal cost.
Apparently, the Republicans learned nothing from the drubbing they took at the polls last November.
No wonder longtime GOP boss Joe Mondello has accepted a very minor ambassadorship to Trinidad and Tobago.
He wants to get out of town before the once mighty Nassau County and Town of Hempstead Republican Party organizations are swept into the dustbin of history.