Andover enters the bond market

The city of Andover entered the bond market again to pay for equipment purchases and to refinance bonds sold in 2004 to pay for the construction of Fire Station No. 3.

Jim Dickinson

Jim Dickinson

City Administrator Jim Dickinson told the Andover City Council March 6 that the city is selling $585,000 in equipment certificates to pay for equipment purchases in 2012 and 2013. The city is selling $1.57 million of bonds to refinance the debt left on the bonds sold in 2004 to pay for Fire Station No. 3.

New voting equipment in 2013, replacing the Andover Fire Department’s Rescue Truck No. 11 and the fire chief’s work vehicle, a new 10-foot-wide mower, a front-end loader, a ditch mowing tractor and mowers, and a one-ton plow truck for public works are among the most expensive items to be purchased over the next two years with these bond proceeds. The city planned for these expenditures in its five-year capital improvement plan.

The debt of these equipment bond sales are paid off by a tax levy.

The bonds sold for the Fire Station No. 3 construction were actually not set to mature until 2014. However, Andover will be completing an advance refunding of these bonds to take advantage of the current low interest rates instead of chancing what the rates will be two years from now.

The council Feb. 6 called for the sale of bonds to take place on Feb. 23. Dickinson said the city usually would enter the bond market on the day of a council meeting, which in this instance would have been Tuesday, Feb. 21. Dickinson did not want the city to enter the bond market then because it was the day after President’s Day. Dickinson said this is usually a popular day for states, counties and large cities like New York to enter the market. Instead of entering the fray, Andover held off two days to “look like a bigger fish in the bond bidding pool,” Dickinson said.

Dickinson told the council that the two-day delay appears to have been a good move.

Dickinson said the city was initially going to issue $630,000 of equipment certificates, but lowered it to $585,000 because the city achieved good interest rates. Dickinson said this is a short-term financing, and the interest rate is only 0.8848 percent.

Regarding the fire station bond, the city originally thought it would have to sell $1,605,000 of bonds, but the city only sold $1,570,000 of bonds because of the favorable rates, according to Dickinson. The interest rate is 0.9488 percent.

By refinancing this existing debt, the city will save $73,088, Dickinson reported to the council.

“For some communities that may not sound like a lot of money, but for this community that’s big money,” Dickinson said.

Dickinson said the issuance cost for the refinancing is $32,669. The savings of $73,088 is the actual savings and does reflect these costs.

The issuance cost for the equipment certificates is $14,076.

One of the reasons Andover was looked at favorably was because of its AA-plus bond rating. The only rating higher than that is AAA, but counties and large cities such as Minneapolis, Minnetonka and St. Louis Park are the ones with this bond rating.

Dickinson read a sentence out of the Standard & Poor’s bond rating report to the council that he said was fantastic to read.

“All of the city’s economic indicators are favorable in our opinion,” the report read. “Median household effective buying income and per capita buying income is what we consider very strong at 167 percent and 124 percent of the national average, respectively.”

Dickinson said this sentence shows that Andover households have more disposable income than the national average. Bond rating companies look at this because city governments cannot function if the financial health of the residents is not good. This information is useful in determining if the city has a stable financial outlook, Dickinson said.

Eric Hagen is at eric.hagen@ecm-inc.com


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