A proposal to refinance the 2006 Bartholomew County Jail renovation could result in a property tax cut.

With current historically low interest rates, taxpayers can save up to $1.5 million during the next 12 years by refinancing the loan, a financial adviser told county officials this week.

“It would decrease the tax rate needed for payment,” added Jason Semier, a partner with H.J. Umbaugh and Associates of Indianapolis.

Nine years after issuing $24.9 million in insured bonds for the jail project, the outstanding principal on the loan is now about $18.3 million with payments scheduled to continue until 2027, Semier said.

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Under terms of the original bonds, refinancing would normally be prohibited until July 2016. But by utilizing a practice known as advanced refunding, the county could act now to save taxpayers money, he said.

In advanced refunding, investors agree to purchase the original bonds with money obtained through low market rates. Savings from the lower interest would then be shared by both the investor and the county, Semier said.

Instead of new bonds, payments would go into a separate account for the investors, he told the county council.

“These bonds will be off your books, and you will no longer be responsible for them,” Semier said.

The question of whether to refinance was described by Mark Gorbett, a new council member and the former sheriff, as “a no-brainer,” an assessment similarly shared by others during Monday’s work session.

Earlier, the Bartholomew County Commissioners formally agreed to the general concept of refinancing the jail renovation bonds during their regular meeting.

However, council members were advised to consider a little risk-taking. Part of the gamble is whether to refinance now or refinance later.

If interest rates stay the same over the next 17 months, the county could save $95,000 annually by refinancing now — or $145,000 a year if it waits until July 2016, Semier said.

“But if you wait and the rates go up even a half-percent during that time, your savings would drop back to $90,000 annually,” Semier said.

And if rates go up by 1 percent under the same scenario, savings would be reduced to only $40,000, he said.

“There’s a pretty good chance rates will go up between now and next July,” Semier told the council.

Public records show the county — now obligated to provide $1.9 million in debt service payments each year for the bonds — has been paying 4.25 to 4.5 percent interest for the past nine years.

A recent informal offer from an investor could lower the interest rate to as low as 2 percent, resulting in the projected total savings of $1.5 million, Semier said.

As council members began pondering their choices, yet another option was introduced by county treasurer Pia O’Connor that she said could result in even larger savings.

O’Connor is proposing that assets from current county investments be utilized to buy the next five years of the bonds, leaving just seven years of financing left to be funded by investors.

“We’ve always got about $9 million as a financial cushion (in the investment portfolio),” O’Connor said.

The treasurer’s idea was shared with at least two investors who indicated they are willing to work under that type of arrangement, Semier said.

However, it’s possible current investments might earn more money if left intact, financial legal adviser Rick Hall told the council.

It’s unknown what type of impact a mixed blend of refinancing might have on lowering property taxes, Hall said.

The council asked both Hall and Semier to work with O’Connor to provide detailed pros and cons of each option to consider at Tuesday’s county council meeting.

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Mark Webber is a reporter for The Republic. He can be reached at mwebber@therepublic.com or 812-379-5636.