Jan. 29, 2008
King County saves $13 million by refinancing bonds
Sewer ratepayers to benefit from bond ratings
Thanks to its exemplary bond ratings, King County recently took advantage of lower interest rates to reduce capital borrowing costs that will ultimately save sewer ratepayers $13 million in 2008 dollars. These savings will help offset the increases in future sewer rates needed to finance the construction of the new Brightwater treatment plant and conveyance systems.
King County refinanced a total of $249 million in 1998 bonds by reissuing $237 million in limited tax general obligation bonds at lower interest rates. The net result is a savings of $2 million per year through 2016 in the annual debt service costs for the regional wastewater system. The service costs are paid from sewer revenues.
"The bond rating is a symbolic measure of how well we manage taxpayer money," said King County Executive Ron Sims. "But it also means real savings of taxpayer dollars when the county is able to use the bond rating to get the lowest possible borrowing costs on its capital projects."
All three of the national credit rating agencies--Standard & Poor's, Moody's and Fitch--reaffirmed their November 2007 bond ratings for King County. All voter approved bonds (unlimited general obligation bonds) continue to receive the highest AAA rating from the credit rating agencies.
For bonds approved by a vote of the county council (limited tax general obligation bonds), Standard & Poor's continues to assign their top AAA rating, whereas Moody's and Fitch have reaffirmed their ratings for this type of bond at one level below the highest rating (Aa1 and AA+, respectively).
The county issued the refinanced bonds using a "double barrel" financing technique which means that sewer revenues are pledged to pay the bonds with additional security provided by the county's full faith and credit taxing authority. This technique helps ensure the highest bond ratings without having to purchase supplemental bond insurance.
The credit rating agencies assign bond ratings based on specific criteria, including: strong financial management practices and policies, a stable economy, and a low debt burden.
In explaining its rating for King County, Standard & Poor's said, "Even as it confronts a slowing economy and structural challenges, the county does so from a strong financial position…King County's management practices are considered 'strong' under Standard &Poor's financial management assessment…[which] indicates that practices are strong, well embedded and likely sustainable."
According to Moody's, the county "management's prudent planning efforts, including conservative revenue projections and a built-in structure to promote under-spending its budget, have at least maintained, and in recent years strengthened, the county's healthy financial position."
The rating agency Fitch explained its rating this way: "Management is excellent, as evidenced by sound fund balance levels, adherence to strong council-adopted financial management policies, and low debt burden."
The agencies also made comments on the county investment pool's impaired commercial paper assets and concluded that the impaired investments were limited and manageable, and would therefore not have a material impact on the county's finances or the bond rating.