Market forces combine to push library's interest rates low

McALLEN — A sudden stock market shift and the recession combined to dramatically lower the cost of the city’s library project.

The new, 120,000-square foot library at the corner of Nolana and 23rd streets will replace a smaller, aging building on North Main Street. McAllen will spend roughly $31 million on the project, including $5 million spent to purchase the old Walmart building in 2006. Construction began June 10.

A bizarre day for the stock market and the recession’s crippling effect on the construction industry helped slash the new library’s cost.

“By the time we actually got around to putting it on the streets for bidding, the construction market here was very competitive,” said Victor Gonzalez, an architectural coordinator for the city and project manager for the new library.

A dearth of construction jobs sent contractors scrambling to submit the lowest bid, which reduced costs 30 percent, Gonzalez said. The initial estimate for renovating the old Walmart went from $20 million to about $14 million. Barcom Commercial Construction of Corpus Christi will handle the work.

On May 6, the city borrowed nearly $30 million at a 2.9 percent interest rate. The city used debt instruments called certificates of obligation to borrow the money, with $20 million dedicated for the library project.

It was a strange day for the market. Between 2 p.m. and 3 p.m. that Thursday, the Dow Jones Industrial Average plunged more than 6 percent in 15 minutes before recovering throughout the day. The Securities and Exchange Commission is still investigating the market’s sudden drop, which caused the price of some stocks to briefly crater, trading for a cent each.

Financial experts blamed “high frequency trading,” a technique that uses secret algorithms and high-speed computers to make millions of trades each second. Algorithms at multiple brokerages may have responded to the same event, causing a snowball effect that dragged down the entire market.

The city commission’s minutes note that the “dramatic change” helped McAllen land a low 2.9 percent interest rate. Favorable analyses from credit rating agencies also helped lower the rate.

“When you bring these things to the market, you never know what other events are going on,” said Brent Branham, assistant city manager.

Not all of the project’s costs have been finalized yet.

Officials still expect to spend $3.2 million on furniture for the new building, and another $1.9 for software, phones, the cost of moving books to the new location and other expenses.

“We still have a few contracts to go so we want to make sure it goes within our budget,” Branham said.

Dave Hendricks covers McAllen and general assignments for The Monitor. He can be reached at (956) 683-4452.