City gets low interest rate on GO bonds
When Speer Financial, Inc. consultants began accepting bids on Marshalltown’s general obligation bonds slated for this year’s street repairs, they thought they would get about 2 percent interest. Instead, they got 1.26 percent.
“The first bid came in at 1.33 (percent), and I was like ‘Woohoo! This is going to be a good day,'” said Maggie Burger, with Speer Financial at Monday night’s city council meeting.
Speer recommended the Marshalltown City Council award the bond sale to the low bidder: Piper Jaffray, out of Kansas City, Kan. The city council voted unanimously to accept the bid.
The sale of the $5.6 million in essential corporate purpose bonds will pay for upcoming street repairs. The city has earmarked $600,000 of the money to Marshalltown Fire Department with the cost of replacing an aging engine in its fleet. The truck is 40 years old, and the MFD has been looking to replace it for several years because of the increased difficulty in locating parts.
Essential corporate purpose bonds are used to pay for basic city services like street repairs. The city repays the bonds with its property tax revenue. With the completion of this second wave of street repairs, crews will have treated a majority of the city’s streets.
Since the interest rate for last year’s bond issuance came in at 1.95 percent, Speer consultants expected to see the market offering roughly 2 percent interest in 2013. The low interest rate means the city will pay just under $482,000 in interest on the nine-year bonds.
Moody’s Investors Service, which provides credit ratings and research on debt service, has rated Marshalltown AA2. An AA2 rating, the third highest rating available, means Marshalltown has high quality and low credit risk.
That rating not only affirmed Marshalltown’s new bonds, but also reaffirmed all of the city’s outstanding debt on general obligation bonds, Burger said. In order to maintain that rating, Marshalltown should strive to maintain its cash reserves, which bolsters its rating significantly, she added.
“You need to be cognizant of your limits that you put on yourselves, your goals as your general fund and your reserve funds,” she said.
Randy Wetmore, city administrator, compared the interest rate to a home mortgage, saying the lower it is, the more it saves taxpayers money.
Having a good credit rating helps the city get good interest rates when it puts bonds out to bid. The city plans to maintain its reserves in order to continue to get good interest rates, he added.
“We budget very conservatively to allow for the creation of those reserves,” he said. “That is just the philosophy the city has had for many, many years.”
Eight companies bid on the bonds, including Farmer’s Saving Bank in Marshalltown.
Piper Jaffray has offered to pay a premium, handing over cash in order to turn around and sell the bonds at a higher interest rate.