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Smart money: NL gets good news in borrowing scenario

NORTH LIBERTY– Even while borrowing $9.995 million, the City of North Liberty is saving its taxpayers money.
Tionna Pooler, of Independent Public Advisors, LLC, the city’s financial advisory firm, told the council at its Sept. 22 meeting that when it comes to issuing bonds, “there is nothing but good news to tell you.”
The general obligation bond will be used to pay for several projects including street improvements, trail upgrades, parks projects and upgrades to water and sewer infrastructure (see sidebar). In addition, a portion of the bond will allow the city to refinance two outstanding debts to get a lower interest rate, and save the city about $48,000 over the remaining life of those loans.
Cities often borrow money to pay for capital projects by issuing bonds, which are bid upon and purchased by banks or investors. The city gets its cash all at once while promising to repay the bond over time. The banks make their money by collecting interest on the bond payments, but they also take a risk that the municipality will be able to make its payments in the future.
Increasingly, investors like the low risk associated with North Liberty. Pooler told the council that Moody’s Investor Services reaffirmed the city’s Aa3 rating.
Moody’s is a bond credit rating corporation that researches and ranks the borrowing risk of commercial and government entities, assigning them a rating on their creditworthiness, from Aaa (the highest) to C.
Moody’s will sometimes downgrade or upgrade a city’s credit rating, depending on factors such as residential and commercial growth, existing debt structure, economy and financial management practices.
“(Moody’s is) starting to make noises about upgrading you at some point. I don’t think it’s going to be immediate, but they are starting to recognize the positive trajectory of the city and how well you are managing your growth. They are looking for you to continue to do great things,” Pooler said.
Since investors look to companies, like Moody’s, to determine the risk in loaning funds to municipalities, a higher Moody’s rating can translate to more competitive bids on the bond.
In this case, Pooler said, a total of 30 banks covering 15 states were part of the six investment groups interested in loaning to North Liberty.
“Being such a highly-rated issuer, you draw a lot of attention, and this is a bigger issue for you so that’s probably why you got such far-spread attention,” Pooler told the council.
And when banks compete, borrowers win. The six bids for North Liberty’s bond resulted in a lower interest rate of 1.748 percent from bid winner Piper Jaffray, so the city will pay $131,000 less in interest and receive $188,000 more in proceeds to spend on projects than Pooler anticipated.
North Liberty’s sound financial management has had a positive cumulative effect, Pooler noted. By refinancing callable bonds, the city has saved a total of $844,000 since 2011.
Happy to hear good financial news, when a roll call vote was called on borrowing the $9.995 million, councilor Terry Donahue responded, “Ecstatically, aye.” The vote was unanimous.

Bonds issued in amount
of $9,995,000, for:

CURRENT AND COMPLETED PROJECTS
Highway 965 Phase 2$1,885,000
Penn Meadows Parks Projects $700,000
North Liberty Trail upgrades $350,000
N. Front Street $445,000
Repaint water tower #2* $191,000
Water line upgrade projects* $935,000
Sewer collection upgrades* $1,275,000
East Trunk main project* $1,600,000
Eastside water main project * $1,035,000
Total $8,431,000
REFUNDING
UR Corp. Purpose Refinance $820,000
GO Water Improve. Refinance $490,000

Borrowing fees: $269,000