The Modesto City Council agreed Wednesday to refinance up to $75 million worth of bonds to avoid a dramatic increase in interest rates. The bonds paid for a variety of city projects, from the construction of Tenth Street Place to improvements to John Thurman Field and the Police Department Headquarters. The bonds, currently at 3.7 percent interest, are scheduled to convert to a variable rate Sept. 1 -- and because the company insuring the bonds has run into credit problems, the new rate could be as high as 12 percent, according to city Finance Director Wayne Padilla. That could cost the city an extra $125,000 per week, according to Padilla. The council voted 5-1 to issue variable rate demand bonds, with a letter of credit from Bank of America instead of bond insurance. Councilman Will O'Bryant cast the dissenting vote, and Councilwoman Janice Keating did not attend the meeting. After the meeting, O'Bryant said he doesn't have any confidence in the financial information he gets from the city staff. "In the past, they have a history of being way off on finance. Every time they suggest something, we end up with a huge deficit. There's got to be a better way to do it," O'Bryant said. The bond insurance would have cost the city $1 million to $1.5 million, according to Padilla. Councilman Brad Hawn said the bond insurance is a guarantee that the city will make the bond payments, and the letter of credit accomplishes the same thing at less expense.
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