On Aug. 13, 2014, the city of Spokane Valley refinanced its outstanding 2003 limited tax general obligation bonds in order to take advantage of lower market interest rates and its stronger credit rating due to a recent upgrade by Moody's Investors Service. The refinancing will result in more than $1.5 million of debt service savings over the next 20 years.
The city accomplished these savings by approving the issuance of $7,035,000 in refunding bonds. D.A. Davidson & Co. of Seattle acted as bond underwriter and Piper Jaffray, also of Seattle, acted as financial advisor for the refunding bonds. The city has been monitoring bond market conditions over the past year, and recent low interest rates allowed the city to actually exceed their savings target. Interest rates averaged 2.70 percent on the new bonds compared to 4.96 percent on the old debt.
The refunded bonds were issued in 2003 for two related purposes.
$5.65 million of the refunding is associated with the CenterPlace at Mirabeau Point, a 54,000 square-foot regional and community event center completed in 2005. Every six months, the Spokane Public Facilities District makes payments to the city related to that project under an Interlocal Agreement. The refunding savings of $1.38 million on that portion of the bonds will reduce the amount of those payments, which are made from regional tax revenues.
$1.39 million of the refunding is associated with road and street improvements in the city that were supplemented or matched with federal and state funds. The savings of approximately $201,000 resulting from the refunding of that portion of the bonds will accrue to the city's operating funds.
Mike Jackson, city manager, said, "We know our residents are concerned about the economy and we felt these cost reduction efforts were important. The city chose to enter the bond market now so that savings could be achieved while interest rates are still near generational lows."
The refunding savings was enhanced by a recent upgrade of the city's credit rating by Moody's Investors Service. The rating provides investors with opinions about the city's overall creditworthiness and its capacity and willingness to meet its financial commitments.
In April 2014, Moody's upgraded its rating on the city's LTGO bonds to Aa3 from A1. The Aa3 rating means it believes the city's debt is of high credit quality and very low credit risk. Moody's affirmed the higher rating in July in preparation for the sale of the refunding bonds. Its rationale for assigning the Aa3 rating includes its opinion of the city's:
- Strong financial performance, with a history of maintaining balanced operations;
- Low debt burden;
- Sizeable and resilient tax base with potential for future growth;
- Maintenance of healthy reserves at levels well above rated peers;
- Revenue flexibility through banked levy capacity and
- Highly prudent financial management, with conservative budgeting assumptions and philosophy of keeping taxes as low as is practical, as promised to voters during incorporation.
Mark Calhoun, finance and administrative services director for the city, said, "Our goal is to prudently manage the resources our community has entrusted us with, and refinancing debt at lower interest rates has helped achieve that goal."