County bonds for public works building

Talk about it

With less than a year before the state plans to shut the doors on the current jail, and a spreading financial crisis sucking up dwindling sources of credit, Douglas County needs to borrow money – soon.

The county is trying to finance the new public works site, already under construction.

Like with most large construction projects, the county is planning to raise capital by selling bonds.

County commissioners Tuesday authorized a bond issue for $6.8 million for the 50,000 square-foot building, located on land near the fairgrounds.

Those bonds are set to go up for sale November 12.

Previously unaffected by the problems plaguing other sectors of the financial system in recent months, the bond market was thrown into turmoil the last couple weeks.

As some of the biggest buyers of bonds went out of business, it was uncertain who would be left to finance such loans, and what effect the failures would have on interest rates.

“That’s the scary thing about bonding,” said Tom Reddick, Douglas County auditor/treasurer.

The county has no choice.

“We probably don’t have the cash-flow to pay for [the public works building] without going into debt,” Reddick said.

Per the Minnesota Department of Corrections, the county needs to complete or have made “significant progress” on construction of the new jail by August 2009 – the shutdown date for the current jail.

Set to be built at the current public works site, jail construction can’t begin until public works moves out.

That means the county can’t put off either building the new public works facility, or borrowing to pay for it.

If interest rates go up, the county could have no choice but to accept a bad deal.

The good news is the bond market seems to have stabilized, for now, said Carolyn Drude, executive vice president of Ehlers and Associates, Inc., a bond sales and financial advisory firm employed by the county.

She said investors are still buying bonds – her firm has sold several this week, all at reasonable rates and with anywhere from three to seven bids per bond.

“It seems people are calmer about all this [now],” she said, “than they were two weeks ago when things started happening.”

Drude said interest rates are more volatile now than they were previously, and it’s impossible to predict what they will look like in the coming months.

“We’ve been having very attractive rates for a very long time,” she said, “so [today’s rates] are not out of line in any way, but they are somewhat higher.

“The big question is, what, if anything, will happen in between now and [November 12]?”

Drude said interest rates have jumped a bit since reaching near historic lows this summer, but a solid credit rating should help the county get a better deal.

“If we’re talking about a 20-year bond with Douglas County,” she said, “I think it’d be fair to say the rate may be in the neighborhood of 4.6 percent to 4.7 percent, today.”

That could change by November.

“It’s a crap shoot,” said Dan Olson, District 5 commissioner and board chair.

Bond rates are still pretty good, though, he said, and he doesn’t anticipate a big problem in securing a fair loan.

District 2 Commissioner Norm Salto said he’s not too worried by the recent troubles in the bond market.

“I still think [the public works bond] will come in at a decent rate,” he said. “That’s my hope, anyway.”

Reddick also remains optimistic.

“There is still money to invest out there, and the safest place to invest is in government paper,” he said. “Government pays its bills.”

Tags: douglas, county, bonds, public, works, building