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Supervisors Agree To Move Ahead On Issuance of Second Bond

By Staff | Feb 21, 2008

After hearing an idea to issue the second portion of the county’s bond plan earlier than was originally planned, the Palo Alto County Supervisors agreed to proceed with the plan after a discussion with the county’s financial advisor Tuesday morning during its weekly session on Feb. 19.

Palo Alto County Engineer Joel Fantz had visited with the supervisors earlier in the month and proposed issuing the second portion of the county’s $11.8 million bonding plan earlier, due to the recent lowering of interest rates. With the initial $5 million bond being issued, the plan had been to wait before issuing the second $5 million bond, but after two successive lowerings of the prime rate by the Federal Reserve Board, short-term interest rates have made the issuance of the bond more attractive.

When he discussed the idea with the supervisors, Fantz noted that he had some questions he wanted to run past the county’s financial advisors, Piper Jaffray of Des Moines. On Tuesday, Fantz brought several options prepared by Piper Jaffray in response to his questions. Also on hand for the discussion were Palo Alto County Treasurer Mary Hilfiker and Deputy Auditor Carmen Moser.

“Piper Jaffray gave us several options to consider, including zero coupon bonds,” Fantz told the board. “But there are still some questions we have to consider.”

As the board considered the options presented by Piper Jaffray, Fantz recommended that the board look at the first option, in which the expected levy fore each year would be used to pay for the existing $5 million bond and a $5 million bond to be issued in 2008, with no additional debt to be incurred in future years and no increase in taxable valuations.

“I guess the bottom line in that recommendation is if we can save $150,000 in interest rates by issuing the second $5 million bond early, then you’ve saved $150,000,” Fantz said.

“So you’re recommending Piper Jaffray’s option one for the $1.61 levy?” asked Supervisor Keith Wirtz.

“Yes,” Fantz replied, “the low interest rate is pushing the debt forward. I’m recommending option one for the next $5 million, and at some time in the future, after we review what we’re thinking on construction, we’ll look at the final $1.8 million.”

Susan Judkins of Piper Jaffray in Des Moines, who was listening to the conversation via speakerphone, offered her input to the group. “I think that’s a very smart option, Joel. We know that staying at the $1.61 levy is your interest, and it’s good that you are aware of the things that could happen, but we are very comfortable with doing the second $5 million bond now to take advantage of the low interest rates. Then, take a wait-and-see attitude about the final bond and project needs for the future.”

Fantz asked what type of ‘cushion’ was built into the bond projections.

“We’re somewhat conservative but not overly so,” Judkins replied. “You can be pretty comfortable with the numbers. Also, we are OK on our timeframe, as far as having the second bond sale in early April. All we’ll need from you to proceed is a maturity schedule to get into our Preliminary Offering Statement.”

Judkins, paused, then added, “My recommendation would be to take advantage of the good rates right now.”

“I think Joel’s right,” agreed Auditor Gary Leonard. “Capitalize on the better interest rates now.”

Hilfiker asked Judkins if the second bond issue would be the same as the first issue at the end of 2007, to which Judkins replied that it would, but with a better interest rate for the county and a better schedule.

Discussion turned to whether the second bond should be insured to obtain the “AAA” rating like the first bond, or to offer the bond at the standard “AA” rating.

“In the best interest of the county, we should see what that financial calculation would be for the AAA versus the AA bond,” commented Hilfiker. “I would feel better if we could see the difference between insured and uninsured bonds.”

“We certainly can do that,” Judkins agreed. “Mary, your intuition was so right on the mark with that last bond, we want to do that again for this bond. It really helped draw interest in the bonds.”

“That’s just part of the job,” Hilfiker replied. “I’m just trying to see all this like the people on the street see it.”

According to Judkins, the prospective offering statement on the second bond will be issued on April 8, and after allowing a couple of weeks, the sale will take place, with issuance on April 22 and closing on May 6.

With no further questions, Supervisor Ed Noonan moved to proceed with the plan to offer the second $5 million bond. Supervisor Ron Graettinger seconded the motion, which was approved on a unanimous vote.