Town Council OKs New Loan, May Borrow Another Million

Cape Charles Wave

November 18, 2013

Cape Charles Town Council voted November 14 to refinance two loans for $1.215 million at a variable interest rate and begin preparations to borrow $1 million more. Borrowing additional money requires a public hearing, scheduled for December 5.

Richmond financial advisor David Rose of Davenport & Company urged Council to take advantage of historically low interest rates with a 20-year loan from PNC Bank.  The interest rate would be 2.65 percent for 10 years and then change to whatever the market rate is in 2024.

Rose claimed the PNC loan did not have a variable rate because the interest rate would only change once. But according to Wikipedia, “variable rate” refers to any type of loan “that does not have a fixed rate of interest over the life of the instrument.” (Click for definition.) Rose’s fee to the Town for arranging the new loan is $37,500.

Councilman Frank Wendell asked Treasurer Kim Coates how much debt the Town currently has. Coates was unable to say, but Rose thought it was around $8 million or $9 million. After consulting with bond counsel Kevin White, he revised that estimate to “about $10 million.”


Treasurer Coates said the Town would pay $713,579 debt service this year.

Councilman Wendell opposed borrowing at a variable rate. “I believe in being a little more frugal — we are not spending our own money,” he said.

All other Council members were enthusiastic about the refinancing, with the exception of Mike Sullivan.  “I’m not comfortable with a 10-year reset,” Sullivan said, but voted for it anyway.

Vice Mayor Chris Bannon said, “I don’t want to go back to what it was like in the past. For the first time, everything is going forward. Everything is first class.”

Councilman Tom Godwin told Rose, “I don’t see anything wrong with your proposal. I say, let’s do it.”

Council members Steve Bennett and Joan Natali were absent, but sent emails supporting the variable rate refinancing as well as borrowing more money.



10 Responses to “Town Council OKs New Loan, May Borrow Another Million”

  1. Gordon Campbell on November 17th, 2013 10:30 pm

    While it is a great time to take advantage of low rates my concern with the new loan discussed here (in addition to the variability) is the upfront fee of $37,500. This is the equivalent of 3.75 points for those used to mortgage terms and the effective interest rate increases to 3.07% for the first 10 years. This effective interest rate does not take into account any additional costs such as loan insurance .

    While I have limited information it appears to be a pricey loan acquisition cost and I am not sure why the town would not deal with PNC directly.

    Going back to the variable risk, the loan balance after 10 years would be roughly $566,000 and the interest rate risk substantial unless the town has some way to pay off the remaining balance at that time.

  2. Kearn Schemm on November 18th, 2013 9:16 am

    Why is Rose getting anything (his fee will be $37,500) for “arranging” the loan? Any bank would be happy to grant a town a loan under the best of conditions. Why don’t we see who else can “arrange” the loan for less cost (or no cost) to the town?

  3. Catherine Nottingham on November 18th, 2013 11:13 am


    Multiply the present payments times the remaining months on the present loan.
    Bet the effective interest rate is far lower than 3%

    Interest is front loaded. This means that the majority of the interest has already be paid on that 40 year loan with 15 years remaining.

    A refinance at any lower interest rate ONLY BENEFITS THE BANK.

    A 2nd mortgage behind the first mortgage (that is mostly principle payments) makes more sense.


  4. Karen Gay on November 18th, 2013 1:05 pm

    So if the town has approximately 1,000 residents, the $10,000,000 the town owes comes out to $10,000 of debt per person. If the Council votes for borrowing another million dollars, I think that they should pay in advance their portion of the debt. Maybe that will make it real.

  5. David Boyd on November 19th, 2013 9:48 am

    I agree with Jack Forgosh. This is a great time to re-finance debt, with interest rates being at historically low rates. The financially prudent course of action is to lock in those low rates, not buy into any type of variable rate loan — that essentially defeats the purpose of re-financing at the low rates. Opting for the variable rate loan would lull the Town planners into the sense that all is well, only to have them shocked out of that complacency when the rates adjust upwards in 10 years. Chances of the rates being the same or lower in 10 years are very low — just look at historical rates. Don’t forget the variable loan rate also looks lower than it would otherwise because the life of the loan is being extended — also not financially prudent. The fixed rate 15 year loan would be much more prudent.

    Finally, I also agree there should be no “finders fee” for getting the Town the loan. Go straight to Sun Trust and take the 15 year fixed rate loan. The bank makes money on the loan; they don’t need the finder’s fee too.

  6. Mike Kuzma, Jr. on November 19th, 2013 11:44 am

    A “refinance” always carries with it a fee. A “recast” of the note would not, but that is rare. I am by no means supporting the ARM, but if I were a depositor in that bank, I’d prefer to have them PROFIT rather than lose MY money.

  7. Barbara Murray on November 19th, 2013 12:23 pm

    In reading the various comments here and in the Anonymous section about the refinance of the Town’s debt, it occurred to me:

    1) It does not make sense to pay 3.75% “acquisition fee” for the loan. As several have commented, go directly to the bank and avoid a fee which the Town can ill afford.

    2) Consider Catherine Nottingham’s suggestion of a 2nd mortgage for the new funds needed. She’s right, considering that there is so much more principal being curtailed with only 15 years remaining on the original mortgage, the balance will be paid off without incurring the substantial interest payments that are front-loaded.

    3) Here’s a novel idea: how about collecting the delinquent property taxes, some of which go back to 2006! I’m sure that would make a huge dent in the amount the town wants to borrow. It’s totally irresponsible not to take aggressive action to collect the overdue taxes. I can tell you that if I did not pay my Fairfax County taxes, the county would have already taken action to either take the property or collect the taxes.

    4) My sister and I own two properties in Marina Village (a home and a now worthless lot), neither of which we will probably live long enough to pay off considering how the values have gone through the floor in Cape Charles. Can we just stop paying taxes and not suffer any negative consequences other than having our names listed in the delinquent tax list? Seems to be the case in Cape Charles.

    5) It would be quite interesting to know just how this tiny Town has racked up $10 million in debt and now needs to borrow even more. I suggest that, in the interest of transparency, all property owners be provided with a line by line item breakdown of the Town budget, or at a minimum, give us a profit and loss statement, for the last three years.

    6) Guess I’ve gone on long enough, but I will say that from the time we purchased our Marina home, the monthly water bill has gone from $57 to $108 before the first drop of water comes out of the spigot. That does not encourage people to become either permanent or part-time residents.

    Things need to change, and without the advocacy of Town management and employees to rein in the budget, we will sink lower and lower in the public eye as an attractive place to own property.

  8. Mary Finney on November 19th, 2013 4:41 pm

    The Cape Charles Town management’s activities and decisions are reminding me more and more of the Obama administration’s antics — and that’s NOT a complimentary comparison!

  9. Deborah Bender on November 19th, 2013 6:56 pm

    Heaven help us all. If someone comes driving through Cape Charles with a trunk full of shiny, plastic beads and trinkets the folks running Cape Charles will probably give them the whole town. Why do we have to pay a consultant to figure out where and how we should borrow money? We are already paying far too much for a town manager and assistant town manager. Why didn’t they find the loan themselves? This is not rocket science.

  10. Mike Kuzma, Jr. on November 20th, 2013 3:00 pm

    Not for nothing, but it is important to note that we are NOT talking about mortgages. We are talking about BONDS.

    An underwritten bond ALWAYS has a fee attached to it. We could go with a bond issuance but that takes more time and there is no guarantee that it would be “sellable”.

    So, NO. A second mortgage is NOT feasible.