The City of Reno finds itself in a position many homeowners can relate to these days. It's living with a variable rate loan that was a good idea a few years ago, but now is costing dearly every month. Now, the city council is looking for a better deal.

The problem began with the new Events Center Ballroom. Three years ago, rising construction costs left financing for the project short. The city refinanced its debt by borrowing $75 million at a variable rate. It seemed like a good deal...and at the time it was.

"With a variable interest rate our costs were a lot less, and that provided us with extra money to do the things the council felt we needed to fund priorities downtown," says city finance director Andy Green.

The deal seemed safe, too. "The security was all there. It was fairly stable. Bond insurers even over a longer period of time had a Triple A rating. No problem. So, it was a good deal at the time."

But today's economy has kicked up the interest rate resulting in a startling development--an extra $125 thousand dollars a week in interest.

Banks once willing to refinance these loans are running the other way.
After 8 months of negotiations, the city thought it had a deal for a line of credit with US Bank, but after looking at declining revenues from room and sales taxes, the bank backed out.

That left at least one council member wondering out loud why the city didn't move faster. Councilwoman Jessica Sferrazza says the council should have known the depth of the problem months ago.

Councilman Dave Aiazzi asked what would happen if the city defaulted It would leave the city with a stigma haunting future financing deals for years--just like a homeowner defaulting on a mortgage.

City staff did have a solution. Bank of America is willing to refinance the debt at a fixed rate, if it has all the city's business. The council voted for to one to start putting the deal together.

The one nay, Councilwoman Sferrazza who worries about where this could be headed. She noted the added interest had already eaten much of the city's $5 million reserve and if the debt service fell to a certain point a general obligation bond repayment scheme would kick in.

"There is no way I would support pledging the full faith and credit of all the residents in the city of Reno for the ballroom and the events center," she said. "We promised citizens they would never be left on the hook for the ballroom or the events center."