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Glassman considers refinancing up to $70 million of Harford's debt

Harford County Executive Barry Glassman is considering refinancing as much as $70 million of the county's outstanding bond debt.

Depending on interest rates at the time the refunding bonds are sold, the county could save an estimated $6 million to $7 million over the life of the new issue compared to what it would have paid, Glassman's spokesperson said.

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Legislation to authorize the sale of refunding bonds is expected to be introduced to the Harford County Council on Tuesday night, shortly after Glassman is scheduled to deliver his first state of the county address since taking office Dec. 1.

Glassman and his aides said previously the state of the county address would focus on various financial issues facing the county, including how they can reduce spending in other areas to give government employees raises.

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Any bond refunding will not increase the amount of principal the county has borrowed, nor will the term – maturity – of any existing debt be extended, Cindy Mumby, Glassman's spokesperson, explained.

Mumby said the refunding would be designed to take advantage of lower interest rates than the county is paying on some of its older debt. She cautioned, however, that many variables are involved.

"Any money that might be saved ultimately depends on market conditions," she said, adding that while the legislation authorizing the county to borrow presents it with "flexibility," there is a chance they won't follow through with selling new bonds.

Glassman echoed that statement in a follow-up interview Tuesday morning in which he said the legislation, which authorizes refunding up to $85 million, is just a first step to authorize a trip to the bond market.

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"We may not do it," he said, noting that $85 million is a cushion, but the amount refinanced will be closer to $70 million. "The decision will be made as we get closer, if the situation with the market is right and we can save money."

The refunding bonds would most likely be sold sometime in April, he said. In preparation, Glassman said he and his top fiscal aides will travel to New York in mid-February to meet with the three major bond rating agencies.

Refunding outstanding debt at lower interest rates is one option Glassman said he is studying. He already announced he wouldn't borrow additional money for relatively new capital projects, like a proposed new combined Havre de Grace High and Middle School, until he has a better handle on the county's debt position.

He said his advisers have warned "we can't continue to borrow the rate we have been and pay debt service with flat revenues. We can't sustain it."

One option is to not add any new debt until the revenue situation improves or until more of the existing debt is paid down. The latter won't show a major reduction until the third to fourth year of his term, he noted.

"We need to take a breather for two to three years," he said, noting the county must still borrow about $40 million to finish the financing for some of the projects built by his predecessor. The only alternative, he said, would be to fund those costs through general revenue, so-called pay-as-you-go financing, and that, he noted, requires significant gains in tax revenue from economic activity such as home building and commercial/industrial construction.

According to Harford's Comprehensive Annual Financial Report for the 2013-14 fiscal year that ended last June 30, the county owed approximately $869 million in principal and interest on its long-term debt, which is broken into three categories:

Agricultural preservation installments – money borrowed to pay rural landowners for development rights, $59 million principal, $17.5 million interest, typically repaid through property transfer tax revenue;

General obligation bonds, government-activity – money for school construction and most government facilities, including firehouses, libraries and police facilities, $464.5 million principal, $150.9 million interest, typically repaid with property tax, local income tax and property recordation and transfer tax revenues; and

General obligation bonds, business-type activity – normally used for water and sewer projects, $132 million principal, $45 million interest, and typically repaid with connection fees and property recordation tax revenues.

Mumby said the refinancing would involve money previously borrowed for a variety of projects.

The focus would be on a refunding a 2009 bond issue, she said.

According to the latest annual financial report, the county sold $120 million in general obligation bonds in 2009, broken down into $96.1 million for government-type activity and $23.9 million for business-type activity. Interest rates averaged around 4 to 5 percent. As of last June 30, the county owed $84.9 million on the government-activity part of the issue and $21.1 million on the business-type activity part.

Harford sold $40 million in AAA-rated general obligation government activity and business activity bonds in March 2014 at an average interest rate of 3.0465 percent.

In February 2013, Harford sold $40 million in 20-year general obligation government activity and business activity bonds at an interest rate of 2.515 percent and $74.7 million in 15-year refunding bonds on both government activity and business activity bonds at 1.956 percent. Both were considered multi-generational lows for the county. Ratings on the 2013 general obligation bonds were slightly lower than for the bonds sold in 2014.

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