by John Holler
Sometimes when it comes to bonding for projects, timing is everything and Wright County has been on a recent hot streak in that regard. In the bond issues for the under-construction Judicial Center and the pending Government Center and Tactical Training Center, Wright County consistently got final bid prices lower than thought possible as competition from large financial institutions has been extremely competitive to land the bids.
At the Oct. 1 meeting of the Wright County Board of Commissioners, the county got more good news from Chris Mickelson from the boding firm of Ehlers Inc. Once again, the competitive bidding process reaped dividends for the county. Thanks to extremely low interest rates, the county saved approximately $600,000 on the final cost of the bonding that was originally projected.
“It was a very pleasant surprise,” Mickelson said. “Because the interest was so low – it originally was at 2.32 percent and following post-sale adjustments (went down) to 2.26 percent – we were actually able to reduce the final three maturities (payments) down to a total debt service down (from approximately $345,000 a year) to approximately $183,000. This is actually about a $650,000 interest savings compared to what we presented a month ago in the pre-sale report.”
Six bids received were received for the project with the low bid coming from Baird Inc. from Milwaukee. The county got a AA+ rating from Standard & Poor’s that lowered the interest rate on the winning bid from 2.32 percent to 2.26 percent.
As a result, the principal amount of the bond issue was reduced by $440,000 because a premium bid was received from Baird. The bond issue presented to the board was $4.82 million, down from the original expectation of $5.2 million for the principal bid. The total repayment cost with principal and interest was reduced to $6.42 million, down from the original estimate of slightly over $7 million.
The key aspect in the bonding was the annual repayment cost – a figure of $350,000 a year. That is the amount the Minnesota Department of Transportation (MnDOT) and the State Legislature have pledged to Trailblazer moving forward to cover the costs of operation for the Wright County facility. None of the 20-year payment schedule has an annual cost that exceeds the allocation amount of $350,000. Payments range from $341,306 to $349,306 with the average being around $346,000, which was seen as more good news from initial projections.
“The debt service schedule came in substantially less than what we were expecting,” Board Chair Darek Vetsch said. “We were looking at (annual payments) of about $350-360,000. Coming in at $345-348,000 range, that’s great.”
Commissioner Charlie Borrell asked Mickelson about any worst-case scenarios under the complicated circumstances that brought Wright County to this point.
The City of Buffalo got into the transit business by constructing the Trailblazer facility in 2015. The county’s bond issue sets in motion the county purchasing the facility from Buffalo, allowing the city to fund an escrow account to repay its 2015 bonds when the call date arrives in 2024. It also provides $2 million for the expansion of the facility to house more busses, since Wright County has become the primary user of the Trailblazer program.
The minimal risk the county would enter into is the result of building equity in the facility that would offset any potential (and unlikely) default by the city. Thanks to pre-approved legislative funding, there would be no financial risk to the county until Year Four of the repayment schedule and, by that time, even in a worst-case scenario, the value of the facility would outweigh the remaining repayment costs.
Vetsch reminded the commissioners that this bond issue will have no impact on county taxpayers. Because the State Legislature has required regional transportation hubs and has promised continued funding of those programs under the provisions of the regional requirement, the county will simply serve the role of a banker in between the state, Trailblazer and Buffalo – eventually owning the building with little to no risk of having to pay anything out of pocket since the funding level of $350,000 annually will more than cover the cost of the bond repayment.
“It should be noted that this is money in, money out,” Vetsch said. “This will not impact the county levy. This program will be funded through MnDOT’s payment to Trailblazer. We are just serving as the fiscal agent to get the bonds to allow Buffalo to get out of this. The program as it is funded has no impact on the taxpayers of Wright County.”
Despite some concerns expressed by Borrell, the board unanimously approved acceptance of the bond issue.
John Holler covers government and the Wright County Board of Commissioners.