County approves $10 million bond sale

Staff

Published Saturday, December 6, 2008

The Mower County Board of Commissioners can’t put a $36 million new jail and justice center on the county’s Visa card.

Paving for the new 128-bed jail and justice center is far more complicated than that.

Thus, the county commissioners retained the services of a bonding counsel, George Eilertson of Northland Securities.

At a special Thursday meeting, the county board gave its approval to an agreement with the Mower County Housing and Redevelopment Authority Board of Commissions for the sale of $10 million in bonds to build the justice center portion of the proposed $36 million project.

Eilertson said at the start of his presentation, “Remember, this is for the courts portion only of the project.”

When bids are received in February or March 2009 for construction of the jail, the county will fund that portion of the project with general obligation bonds now estimated at $22 million total with the remainder of the jail costs coming from county reserves.

According to Eilertson, $10 million in fixed rate lease revenue bonds secured by a lease between the Mower County HRA and Mower County will be issued.

“The county pledges to annually appropriate the lease payments to the HRA to service the debt,” Eilertson said.

The structure of the bond sale will be almost 20 years long (2010-2029) with a call date of Feb. 1, 2016 and any date thereafter.

A debt service reserve fund will be sized at the maximum annual principal and interest on the bonds.

Only a week earlier, county finance director Donna Welsh received word from Standard and Poor it has been assigned a “AA minus” bond rating with an average interest rate of 5.42 percent.

The average annual payment on the bonds will be $830,400.

Eilertson joined Welsh and county coordinator Craig Oscarson at a Dec. 4 meeting of the Mower County HRA board, where the bond sale received unanimous approval.

According to Oscarson, the county expects to close on the two blocks of downtown property where the new facilities will be constructed Dec. 30 with the city of Austin, who is acquiring the property from private owners.

“Mower County will lease the land to the HRA and the HRA will lease the buildings to the county,” Oscarson said.

Mower County’s “rent” to use the buildings will be in the form of the purchase price of the $10 million in bonds.

Over the 20-year period of the bonds, the county will actually make its “rent” payments to the transaction’s trustee, US Bank of Austin.

Eilertson categorized the county’s AA-minus Standard and Poor bond rating as well as the Mower County HRA’s “AA” rating as “Both are very good.”

The bond ratings were earned, Eilertson said, by “the extremely strong financial situation” in Mower County.

Eilertson showed the commissioners a spread sheet comparison with Douglas County, where officials are engaged in a similar process to fund a new jail and justice center.

According to the comparison, Douglas County is issuing $6.8 million in lease revenue bonds with its own HRA for a 20-year period.

“The comparison shows a lower interest rate, lower cost and better credit rating for Mower County,” Eilertson said.

Mower County’s issuance of $10-million lease-revenue bonds is “already attracting attention,” according to Eilertson.

Three or four unidentified banks in Mower County have already placed orders for $1 million-worth of the lease-revenue bonds.

By formal resolution, the commissioners unanimously approved the bond sale.

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