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Holyoke's new interest rate allows for cheaper loans

Date: 6/26/2012

June 27, 2012

By G. Michael Dobbs

HOLYOKE — With the new interest rate extended to the city, it is less expensive to borrow money to pay for the construction of the new senior center than taking the money out of the city's account, according to Treasurer Jon Lumbra.

Lumbra explained the city was offered a bid of 0.594 percent on a $6.3 million nine-month loan from Eastern Bank. He said the interest rate was "the best rate the city ever got on a loan or note."

Currently, the city earns 0.75 percent interest on its funds. It's better for the city not to liquidate any of those reserves as they are making more money than what the loan will cost.

Lumbra credited the change to the upgraded bond rating the city has received. Moody's Investors Service, a municipal credit rating agency, recently gave the city a ranking of "A-1," which Lumbra said was four grades better than its rate of "B-AA" three years ago.

With the older rating the same amount of money would have probably been lent at 1.6 percent, he said.

"The better we handle the city coffers the better this reflects to the credit agencies and in return the less it costs us/the taxpayers to do business," Lumbra said.

He credited the better rating in part to his office cleaning up a five-year backlog of municipal audits and keeping the present audits on schedule. He added the city's diversified economic tax base also helped raise the rating.

Mayor Alex Morse stated, "The city must be ready to take advantage of these historic lows in the market. We are borrowing at rates less then we are currently getting on our Money Market Accounts, meaning we will earn more on the interest this earns in the bank then what we will end up paying for these funds."

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