County scores great deal on $18 million in bonds

Groundbreaking at the end of September

Gunnison County sold $18 million in bonds Tuesday to fund the construction of a jail and public works facility over the next 18 months. A Double A credit rating awarded to the county two weeks ago saved tax payers more than $1 million in financing costs.

“[The underwriter] said the market was really good,” county manager Matthew Birnie says. “The true interest costs were 3.83 percent, which is great. We’ve saved a million and a half bucks in the last week and a half.”
The sale Tuesday, August 24 was a combination of a few traditional tax-exempt bond-backed certificates of participation and Build America Bonds (BABs).
The mix of the two types of issuances depended on the way the markets were treating each the day of the sale. And BABs were the hot item, making up $17.27 million of the offering.
Under the American Recovery and Reinvestment Act, Build America Bonds (BABs) are an authorization that allowed municipalities and counties to issue taxable debt, but get a 35 percent tax subsidy, in cash, from the federal government for interest paid.
When the idea of using BABs to partly finance the projects was first introduced to the county in May, the commissioners were told that BABs usually carried a no-call provision, meaning they couldn’t be repaid early.
But Birnie said that the county could start to repay the loans after the first 10 years of the 30-year term of the debt; he anticipates that the county will do just that. “Even with a good interest rate, over 30 years the repayment is about double [the borrowed amount],” he says.
“And it would surprise me if the county didn’t pay these back early,” Birnie continued. “After that 10 year [no call] mark the county will be able to start paying these off. But we structured a 30-year deal to make the cash flow more comfortable in the early years.”
For now, the county will pay back about $1 million every year from its capital improvement fund that draws on a 1 percent county sales tax. That fund, Birnie says, should be sufficient to pay back the loan even when the budget is tight.
“We can comfortably pay the financing on $18 million. We’ve got the demands, project components, that could take the cost well above that,” Birnie said. “We were very conservative on the revenue side, we assumed no growth in sales tax or severance tax or any of the sources that we’ll use to repay this, which hopefully won’t be the case over 30 years.”
Now that the money is in hand, the county will stash it in a local bank to draw on as it’s needed to pay for the projects. The initial guaranteed maximum price (GMP) agreed upon by the general contractor and the county is $17.1 million, and the final GMP can only be less than that.
Even though the county issued $18 million in bonds, after paying the costs, it will see about $17 million in cash. So Birnie says staff will have to get together to look at the proceeds from the bond sale, the $1 million Department of Local Affairs grant the county got for the jail and the money it has saved to figure out just how much they really have.
The plans currently in play for the jail have a price tag of about $11.5 million after a fairly major redesign by the Blythe Group & Co. shaved square footage and four beds from the jail design to bring the price down. Another $6.6 million is needed to build the public works facility.
 The actual cost of construction is $8.9 million for the jail and $5.1 million for the public works facility, with the balance being made up of the costs of planning, architecture and other steps that aren’t directly related to the brick and mortar. The county negotiated a fee of 3.5 percent of those costs that will be paid to the project’s general contractor, GE Johnson.
Once the final GMP comes in, some of the additional items that were left out for the sake of cost will get another look. First in line will be a completed sheriff’s office on the second floor of the new jail, and an enclosure for the wash bay at the public works facility.
Groundbreaking on both projects is scheduled to take place at the end of September.