April 30, 2010… Cuyahoga County could save up to $1 to $2 million a year in interest for the Medical Mart/Convention Center by using bond borrowings allowed by federal stimulus subsidies. The subsidy would decrease the cost of borrowing.

The savings would depend upon interest rates at the time bonds are issued, likely this year.

Federal stimulus programs allow the County to reduce interest costs on some $94.1 million in borrowing, according to County officials.

I questioned whether the subsidies could be used for other County projects. According to Matt Rubino, County director of Budget and Management, this subsidy could not have been used for other County projects.

However, Rubino said, other County General Obligation bonds – some $43 million – had been used already via the stimulus funding to help support the County’s new Juvenile Justice Center cost.

Tim Offtermatt, senior vice president of Stifel Nicolaus & Co., said that bonds for the project could be issued as early as September of this year. He is handling some financial aspects of the bonds. Squire, Sanders & Dempsey also will participate in the bond issuance.

The stimulus money gives the County the ability to borrow at a lower cost. It is not a grant but allows the cost of borrowing to be lowered as the feds subsidize some of the cost. The federal subsidy will apply to some 45 percent of the interest on $94 million in bonds, according to Rubino.

Cuyahoga County was able to increase the amount of bonding to be covered by the special funding because other counties in the state did not use the total allocated for Ohio. Money from the unused state allocation was then shifted to Cuyahoga County at its request.

The complicated allocation of subsidy allows the County to use some $20 million of borrowings on public aspects of the project. For example, the cost of new sidewalks, grass and reconstruction over the rebuilt underground convention center and new street reconstruction would be eligible for the subsidy.

The federal subsidy would lower the interest costs even below the cost that would apply to tax-exempt bonding for public purposes. Because of the private aspects of this development by MMPI of Chicago, bonds would not have necessarily been at tax-exempt rates.

Bonds that were not tax exempt would have cost the County project more dearly.

The County has collected more than $91 million in sale taxes on the quarter percent sales tax voted by the County Commissioners for this project. The tax has a 20-year term. It took effect January 2008. It will likely raise some $800 million over 20 years. The project’s estimated cost – without the cost of borrowing – is some $425 million.

I had questioned whether the County could have used this special subsidy to enable it to do other projects, for example, redevelopment of the Ameritrust property at E. 9th and Euclid Avenue.

According to Offtermatt, the Medical Mart/Convention Center project is the only one ready to go, a stipulation for the use of the special stimulus program funds via the state allocation.

County officials said that this should insure the project would come in within budget. We’ll see.