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Schools Denied Loan Because of City's Credit Rating

School administrators said the city's recent credit downgrade is a factor in why they experienced difficulty in securing a loan to lease school buses.

CalFirst Bank, which said it would loan Manassas Park money to lease-purchase new school buses, suddenly decided against extending the loan, and school officials believe it is—at least in part—because of the .

School division administrators had to negotiate a new agreement with Alliance Bank of Manassas Park to borrow no more than $255,732 for three new school buses, Superintendent Dr. Bruce McDade told the Manassas Park School Board during a work session Monday evening.

 The school board, in turn, voted Monday to approve the lease-purchase agreement with Alliance Bank, the only bank or bank branch in the entire city.

 School board administrators said the decision to go with Alliance Bank was last minute because they found out just hours before Monday’s meeting that CalFirst Bank backed out.

 “As a result of them backing out we had to go to our next choice,” McDade told the board. “… They are very much aware of the city’s bond (rating) and downgrade and that’s why we are having difficulty.”

Manassas Park's credit rating was and again by

 Another bank, SunTrust, did not bid for the loan because of exposure levels; which is linked to how much of a risk of default the bank is facing if it should decide to lend money to the city.

 McDade told the board he met a very nice SunTrust banker at a conference he attended recently, but the banker’s mood shifted after McDade told him he was affiliated with Manassas Park.

 “He was very friendly until he found out I worked in Manassas Park where the city’s bond rating dropped five notches, and then I didn’t see much of him for the rest of the conference,” he said. “I called him and he did not return my phone call — that’s the reality of what we are dealing with here with the finances in the city.”

 School board Chairman Michael Wine said even though the city will end up paying more money by borrowing the money from Alliance Bank, at least they are “keeping it in the Park.” 

The city would have paid $4,484.60 per month if it had borrowed from CalFirst, according to school division data.  The monthly payments to Alliance Bank are $4,825.98.

The loan is expected to be paid in full in June of 2017.

 School administrators said they sent out competitive quotes for the loan by phone and by email to CalFirst, Alliance Bank, SunTrust and other banks. BB&T didn’t respond and Liberty Commerical Credit didn’t bid.

Another bank, Tetra Financial, agreed to issue a loan with monthly installments of $4,539.24, but that loan didn’t have a non-appropriation clause. This clause protects the school division from being directly held accountable if the city should default on the loan.

 By law, the city and the school division’s financial accountings are separate, but the city does pay the school division’s debt service.

The next school board meeting is June 18 at 7 p.m. in the school boarding meeting room on the second floor of Manassas Park City Hall.

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Bob Jordan June 05, 2012 at 01:45 PM
"difficulty in securing a loan to LEASE school buses." Just to lease and NOT buy!!!
MPSince03 June 05, 2012 at 02:35 PM
Let's put this in real dollar figures. My math says this wouuld cost the city an additional $20,482.80 over the 5 year term. So the interest rate jumped from a tick over 2% to 5%. Ouch.
Jamie M. Rogers (Editor) June 05, 2012 at 04:03 PM
It's good that the city has a sound relationship with Alliance Bank-the city borrowed money from it this fiscal year to tide it over between real estate payments.
Bloomie June 06, 2012 at 02:14 AM
Alliance Banks corporate HQ is in Chantilly, so I'd hardly call it "keeping it in the park". That's as good as if they said they by all their gas from 7-11 and are keeping it in the park. I guess Mr. Wine is getting ready for a run for council in the future.
Jamie M. Rogers (Editor) June 06, 2012 at 06:43 PM
Hi Bob, it's a lease-purchase, not a lease. The division will eventually own the buses. The article has been reflected to to say this. Apologies for the misleading wording.
Leo Mahoney June 06, 2012 at 10:04 PM
I have been writing the mayor and city council members for the past 3-years urging them to institute fiscal austerity in an effort to move toward lowering the real estate tax rate in order to maintain competitiveness with PW County and Manassas residential property values. They have not listened and as a result the credit rating was cut substantially by the "street" and now you are beginning to see the effects - high rates to lease buses, increased water/trash fee, highest tax rate in the State, and substantial interest expenses coming in 2013/4 and beyond. The city has 2 choices now: massive budget cuts or start serious negotiations to realign management of the township under the County. Period. We love our home but are finally off the ledge and looking to potentially sell - what a shame.....

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