Bond, General Obligation Bond

 

The postponement of the January meeting of the Goochland Board of Supervisors had one positive result.

A resolution for the issuance of general obligation bonds to fund capital projects, including a new Goochland Elementary school, in an amount not to exceed $54 million was unanimously adopted by the supervisors at their January 19 meeting. Authorization to issue this debt was overwhelmingly supported in two separate bond referendums in last November's election. One was to issue up to $60 million in debt for school projects, the other for $36 million for county capital items including a new courthouse and fire-rescue station in West Creek.

Between January 4 and January 19, the supervisors learned, to no one's surprise, given supply chain and labor issues, that actual construction costs have increased. The $49 million bond issuance resolution, about half of that permitted, was bumped up to $54 million. The additional $5 million will be used for school related projects, the bond issuance for county projects will remain unchanged at $8.2 million.

County Director of Finance Barbara Horlacher reported that staff recently met with financial advisors to determine the structure of the debt. They also met with the bond rating agencies—Goochland has three AAA bond ratings, the only county of our size in the nation to do so—who indicated that they would give favorable ratings to the debt; most said there is no reason to change Goochland's ratings. Horlacher expected the county to receive final word "in a day or two" and said that they indicated there is every reason to give favorable ratings.

The debt is expected to be issued some time in February. Even though interest rates are going up, said Horlacher, they are still favorable. Preliminary work has been done on GES; it is needed soon. Increasing the amount of the initial issuance will give the county greater flexibility in financing, said Horlacher. It does not change the amount budgeted for the projects, but provides extra debt proceeds, extra cash that the county can hang onto and use at its discretion. It will still count against the $60 million approved in the school bond referendum but could be used on other school capital projects if not needed for the new GES. The bond proceeds must be allocated by the supervisors before any money is spent.

District 5 Supervisor Ken Peterson, Goochland's own bond guru, explained that general obligation bonds are secured by the full faith and credit of the entire county. That means, said Peterson, that if the county does not have sufficient funds to service the bond debt, the county would levy an additional tax, whose proceeds would be dedicated to those payments.

Bond proceeds cannot be comingled with county funds or used for any other purpose. Terms include the yield on the bonds is less than four percent; the principal has to be at least 98 percent of par; and the term has to be no greater than 28 years. Peterson said that, typically, bonds can be refinanced at about half of their life. For instance, a 20-year bond could be refinanced after ten years. 

Bonds can be issued using different processes, direct placement, negotiated sale, or an auction. Goochland is contemplating going out with a competitive bid, a Dutch auction approach to get the best pricing on the bonds, said Peterson. Semi-annual payments on the principal and interest on the debt are expected to begin in July.

Peterson explained that having the AAA bond ratings simplifies debt issuance. As a "show and tell" exercise, he displayed a weighty tome that is the documentation for the Tuckahoe Creek Service District bonds in 2002 versus a modest sheaf of documents for the current bond issue.

District 5 supervisor Ken Peterson and TCSD documentation (r) new bond issue (l)

"This is a historic moment for the county," Peterson said. "This is the first time that the county has ever been able to access the capital markets directly rather than going through the Virginia Resources Authority, which will save the county money."

Issuing debt in the current fluid financial markets is "like trying to nail jello to a wall," Peterson said of the timing. There was some discussion among the supervisors about increasing the amount of the initial offering to perhaps secure a lower interest rate, anticipating inflation on the other projects. Some concern was expressed about paying interest on money borrowed before it was needed versus waiting to borrow at perhaps higher interest rates.

Horlacher put the proposed debt into perspective. The county has a policy that debt service will not exceed 12 percent of its annual budget, with an informal maximum of 10 percent. Debt on the proposed bonds would bring the county debt ratio to 7 percent.

These bonds represent about half of the amounts approved by the voters. Peterson explained that demonstrating that it can handle part of the debt will stand Goochland in good stead to secure favorable terms to issue bonds for the remainder in the future.

Issuance of this debt is expected to have no impact on current tax rates.