Bonds are suggested for juvenile center financing
June 25, 2008 · Updated 5:32 PM
Declining interest rates might help Island County raise funds for its planned juvenile detention center without raising any taxes.
Seeking to take advantage of low interest rates, Elaine Marlow, Island Countys budget manager, recommended that the Island County Board of Commissioners approve a bond refund Monday. The move will call back the majority of $9.9 million in 20-year municipal bonds issued in 1997 at approximately 5 percent interest rate. Bonds to be reissued in their place will pay investors at a rate of about 3.5 percent. The county still owes more than $6 million on the bonds in that issuing.
Under the proposal, the county would sell $8.1 million in municipal bonds at an interest rate lower than 5 percent to Bank of America. Bank of America would then sell the bonds to investors. After Bank of America pays the county the proceeds from the sale, most of the money would go into a special reserve account, where it remains until the bonds are paid off.
The bond turnover is intended, in part, to provide enough money to pay for the $5.3 million juvenile detention center. The county has come up short on its budget for the facility, as the winning bid to build the project is $2 million more than budgeted.
The move is also expected to save the county on interest payments, Marlow said. For example, if the county refunded the bonds at an interest rate 3.48 percent, the county would save $378,000 in interest payments to the bondholders as compared to payouts at the current interest rate.
Marlow said a .05 percent excise tax the county collects on property sales in Island County would pay the interest on the bonds. In addition, refunding bonds would force deferment of a few maintenance, public works and parks projects.
Marlow said she will schedule a bond presentation to the commissioners. The commissioners need to make a decision about bonds quickly, she said, because interest rates fluctuate often and could rise to 4 or 5 percent again.
The commissioners were receptive to the idea of the bond refund. The countys only other financing option for the juvenile detention center is a loan between two of the countys funds.
I think it makes real sense to reissue the old bonds, said Mac McDowell, District 2 commissioner. Id just like to see the numbers.
An interfund loan allows the county to transfer funds from different county departments, Marlow said. However, the loan must be paid back within five years with interest.
Bonds are certificates issued by a government or corporations that state the amount of a loan, the interest to be paid, repayment time frame and collateral pledged if payment can not be made.