Wed09022015

Last updateWed, 27 Dec 2017 12am

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County to refinance debt to save money

Refinancing school debt will save $3,000,000 on debt service

The King George Board of Supervisors agreed in concept last week to go forward with refinancing two chunks of school debt, adding up to nearly $33 million, to save nearly $3 million on debt service. That is expected to happen by getting a loan with a lower interest rate while keeping the existing payback date of 2036.

Supervisors will likely be provided a resolution next month for their approval when Davenport & Company LLC comes back with additional details.

As part of its service as financial consultants to the county, Davenport routinely

monitors the county’s financial instruments and brings forward information on refinancing when deemed advisable.

The money borrowed in 2004 and 2006 totaled more than $37 million to go toward construction of the high school that was completed and opened in 2009. The amount to be refinanced is now about $32.8 million.

This is not the first time Supervisors have restructured county debt in order to lower interest rates and save money. This time, the savings is expected to total nearly $3 million from refunding the two outstanding bond issues, saving over a $100,000 annually in debt service.

David Rose and Kyle Laux of Davenport provided the recommendation and information to Supervisors at a budget work session on Feb. 15.

Vice chairman Dale Sisson presided at the meeting in the absence of chairman Cedell Brooks. The three other board members were present. They are Ruby Brabo, Joe Grzeika and John LoBuglio. 

King George will again be able to take advantage of borrowing rates at the latest historical lows. Rose said the county is eligible for some of the lowest interest rates available due to its AA credit rating.


In 2011, credit rating agency, Fitch Ratings stated, “King George’s strong financial performance is evidenced by sound operating margins and high reserve levels in accordance with its conservative fund balance policy.”

Rose noted that the relatively high volume of cash reserves the county keeps on hand is worth a big savings on the interest rates it is charged, adding, “It is probably saving upwards of one percent on borrowing money.”

Rose said there are other advantages to keeping undesignated/unassigned cash reserves high. “Given the continuing budgetary challenges as a result of continued sluggishness in the economy, the county would be prudent to maintain solid reserve.”
Rose added, “Cash is king in the current economic environment.” In addition to saving money on interest rates when borrowing, Rose and Laux noted several other advantages to the practice.

Those include no need for costly short-term cash flow borrowing or emergency borrowing in the event of a natural disaster or other emergency. Having cash reserves available provides a ready source of funding for economic development projects/incentives. It also provides interest earnings on reserves which helps eases pressure on tax rates.

The Davenport reps got the go-ahead to pursue the refinancing using a multi-track strategy, as in the past. They are expected to apply to the Virginia Resources Authority (VRA) for its spring 2012 pool financing. They will also determine the viability of a direct bank placement for all or a portion of the refinancing by soliciting a competitive request for proposals to banking institutions. Davenport is expected to return in March with a recommendation on which financing method would be most advantageous to pursue.

 

Phyllis Cook

 

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