We noted here last week that the current financial crisis seems to have had an unsettling effect on the market for municipal debt issues, with the AAA-rated County unable to find a bidder for $30 million towards construction projects.
Still, the City was able to pull off its sale of almost $59 million in general obligation and two-thirds bonds back in August -- before the current market meltdown began.
And in a memo to City Council, interim director of finance Keith Herrmann calculates out a pretty decent savings to City coffers from the preservation of a AAA bond rating for Durham:
The savings realized by the City by having a triple AAA rating can be approximated using the difference between the BBI index [a weekly composite of transactions in the tax exempt municipal bond
market representing a blended rating between single A and double AA] and the rate the City actually received. For these bond sales the City will save about $3,550,000.00 in interest costs over the life of the bonds by virtue of our triple AAA rating.
Some back-of-the-envelope based on the information in Herrmann's memo to Council leads us here at BCR to calculate that we'll end up spending about $26 million in interest payments through 2026 to finance this $59 million in borrowing.
In that case, then the AAA rating (under our scenario of assumptions) reduces the actual borrowing cost for the Bull City by about 12% -- or from about $29.4 to just under $26 million.
The City Council will receive a report on the summer bond issue and other financing activities at their October 6 Council meeting.