May 28, 2020
ROBBINSVILLE/HAMILTON, NJ (MERCER)–The revitalized partnership between Hamilton and Robbinsville Township has provided an opportunity for both towns to benefit financially.
With Hamilton sitting on approximately $14.5 million in short-term debt, Robbinsville has stepped in to purchase $4,098,536 in short-term bond anticipation notes (BAN) at an interest rate of 1 percent. Township Council Thursday passed a Resolution authorizing the purchase agreement.
The 1 percent interest rate is significantly lower than what Hamilton would pay in a very volatile bond market triggered by COVID-19, among other factors. Robbinsville taxpayers benefit because their town’s rate of return from Hamilton will be 10 basis points higher than the rate currently provided by its bank.
The short-term BAN have a maturity date of February 17, 2021.
“This is a win for Hamilton because it will be less expensive than going out to the traditional bond market, which is currently very volatile,” Robbinsville Mayor Dave Fried said. “It is also a win for Robbinsville because we will earn more in interest than what we are currently getting on our cash surplus. This is a way for us to help our neighbor, while increasing the return of our cash on hand now that bank rates have tumbled during the pandemic. It is a win-win for taxpayers on both sides.”
In “normal” economic times, the market for New Jersey municipal debt usually mirrors the rates experienced by federal securities. With the recent trends of both Federal securities and historically low interest rates, the interest rate municipalities would have to pay to borrow money for capital improvements would also be at, or near historic lows. However, the economic impact of COVID-19 on the municipal debt market has created an environment with daily fluctuations ranging from roughly 1.5 to 4 percent.
Additionally, in line with interest rate cuts by the Federal Reserve, the earnings rate for municipal investments has also dropped significantly in recent times to yields ranging from .10% to .25%. The Township of Hamilton approached Robbinsville to join in an economic partnership that would benefit both towns. On May 18, Hamilton sold just over $4 million of the $14.5 million in BAN to Robbinsville. Hamilton sold the remaining $10.5 million of notes to TD securities at a rate of 1.15% – also a beneficial rate given the instability in the markets of late. The maturity date of the TD notes is February 17, 2021.
“Given Hamilton’s diverse tax base and New Jersey’s strong history of regulation and monitoring of local government finances, the risk to Robbinsville is very low and the return is higher than the township could get from a bank,” said Thomas Hastie, whose firm, Malamut & Associates, has served both towns. “This appears to be a win-win for both townships.”
Hamilton Township, which hopes to unveil its 2020 budget in June, is facing tough economic times both in part to a sizeable budgetary hole left behind by the previous administration, as well as decreased revenues related to the COVID-19 pandemic.
“Hamilton Township was left with a significant budget hole by the Yaede administration, so our financial team was forced to think outside of the box in order to lead the Township back to financial stability,” Hamilton Mayor Jeff Martin said. “The option to borrow direct from Robbinsville was mutually beneficial to both towns. Hamilton was able to pay off our debt at below market rates, and Robbinsville earns money from the accumulated interest at a more profitable rate than it otherwise would. We’re thankful to have neighbors in Mercer County that recognize that working together and lending a helping hand, especially during these uncertain economic times, is best for all of our residents.”