After nearly five decades, Columbus, Ohio's debt manager will retire
DALLAS -- Hugh Dorrian retires at the end of this year after 48 years as Columbus, Ohio's city auditor.
In the elected office, which among other duties handles the city's debt issuance and debt management, Dorrian protected the city’s triple-A ratings.
“Dorrian has safeguarded the city's triple-A bond rating by reminding city officials of the limits to what the city could handle and remind them of difference between obligations that the city was required to undertake and obligations that were discretionary,” said Don Brown, executive director of the Franklin County Convention Facilities Authority. “He did that at times with disagreement with the mayor and occasionally with other city officials because he was personally devoted to the city’s financial well-being and credit status.”
Brown credits Dorrian for influencing his decision to join county government in the early 1970s and has regarded him a mentor ever since.
Megan Kilgore, who takes over the role of auditor in January, said that Dorrian’s management style is built off of a foundation of education. “His legacy of exemplary financial management has been buoyed by the sheer fact that he enjoys learning, he tirelessly digs into the details of financial decisions, and he relishes the opportunity to share information,” Kilgore said.
Kilgore, a private municipal adviser to governments throughout the country for H.J. Umbaugh & Associates, previously worked for 12 years under Dorrian, who chaired her election campaign. She won with more than 77% of the vote.
Kilgore said she plans to continue the “strong fiscal management of the city” while bringing a fresh approach to the office.
“I hope his 52 years of service are a reminder to many that it’s an honor to serve in public service. It’s an honor to be an elected official,” she said. Dorrian was city treasurer before taking the auditor's office in 1969. “He has shown, by example, that serving as an elected official requires not just technical capability, but an adherence to the values important to our citizenry in Columbus including honor, ethics, fiscal stewardship, benevolence, and democracy, and a commitment to carrying out one’s job within the bounds of the City Charter, State Constitution, and U.S. Constitution.”
Dorrian took his last turn representing the city as issuer in a bond sale earlier this month with a $188 million refunding that generated $10 million of present value savings for Columbus. Ahead of the sale, Moody’s, Fitch Ratings and S&P Global Ratings affirmed the state capital's triple-A ratings. The outlook from all three is stable.
“Maintaining a discipline in your financing methodology is the secret to success,” Dorrian said.
Part of that discipline has meant staying away from fancy financial risk instruments bankers have pitched over the years. The city shied away completely from the auction rate securities and interest rate swaps under Dorrian’s leadership. With swaps, Dorrian says that he never felt comfortable with taking “that kind of risk with public funds.”
The auction rate securities market fell apart amid the global financial crisis as investors vanished from the regular auctions that reset rates and already strained investment banks chose not to step in to support the securities.
Dorrian said he expressed concern over the risk there would be no bid but underwriters at the time reassured him that there would always be a bid.
Columbus was one of the first U.S. cities to issue variable rate general obligation bonds in the 1980’s, but events bore out Dorrian's skepticism about swaps and ARS. “I was not convinced,” he said. “I’ve always refused to do both instruments and looking back over my shoulder I am happy I did.”
The city has instead stuck to more traditional forms of municipal financing that Dorrian said has been an even split between competitive and negotiated sales.
“So when I am doing a traditional new money bond sale, which is pretty traditional, we always do that competitively,” he said. The city completed a $314 million new money bond issue to pay for street repairs, construction projects and other big ticket item in September that was competitively bid.
His last bond sale, the $188 million GO advance refunding, was done as a negotiated sale. “There are so many more parties involved in a defeasement than in a straight GO sale that I typically would have the refundings negotiated,” Dorrian said.
Dorrian says that he is a very big believer in full disclosure. The Ohio Government Finance Officers Association has awarded the city its award of excellence for the last 38 years. It most recently renamed its Lifetime Achievement award to the Hugh Dorrian Lifetime Achievement Award.
Dorrian said that disclosure has been helped with the evolution of preliminary official statements and official statements and continuing compliance on disclosure. “MSRB has become so prevalent and I am a big believer in that disclosure,” Dorrian said.
Columbus voters have approved 78 of 82 bond issues placed on the ballot since 1966, when Dorrian first went to work for the city. “Since we started this practice back in 1956 over the period of time the city has asked its voters on 96 bond issues and they have said yes on 90 of them,” Dorrian said. “To me that is a phenomenal response from voters.”
In November 2016, voters approved a $950 million bond package to resurface roads, install new water lines and complete other capital projects. Approximately half of the authorized debt is expected to be repaid by net revenues of the city's enterprises.
Dorrian credits the success rate at the ballot on the city's ability to keep to its promise to not raise property taxes. Dorrian said that Columbus has not had to raise property tax rate in 16 years. “We have promised voters that we will not ever impose those property taxes and in 60 years that promise has been kept,” Dorrian said. “I tell my colleagues be careful don’t ever break that promise or you’ll never get a vote on a bond again.”
On the one hand, voter approval gives the gives the city the authority to raise taxes and Dorrian said there is also the cushion of income tax receipts the city has set aside since 1956, when the income tax first was approved. The city sets aside 25% of the income tax proceeds to pay off debt. This cushion has allowed the city to keep up with infrastructure and other capital needs. Income tax collections, the city’s largest revenue source, are projected to end the year up about 3.2%, and Dorrian expects that growth to slow next year.
“Bondholders have to feel pretty comfortable that we have this income tax that we have pledged and at the same time we have this already voted authority to increase taxes if we must,” said Dorrian.
In the final budget projection Dorrian said the city will have $873.8 million in available funds for 2018. The city’s rainy day fund should reach $75 million by the end of 2018.
Despite Columbus’ good financial shape, Dorrian leaves the city with one concern . The city auditor said that advance refundings have been key to reducing the bottom line for Columbus and other city governments. “Anecdotally I have been doing defeasances every opportunity I can,” Dorrian said, including the recent deal that brought $10 million present value savings. “ This proposed tax bill in Congress would put an end to defeaseances,” he said.
Dorrian said that cities faced a similar challenge with the 1986 tax bill which ultimately limited issuers to one advance refunding of a tax-exempt issue.
“Here we are now and this tax bill proposes to eliminate them all together,” he said. “It will deprive cities and municipal issues of potential from saving a lot of money from time to time. The bottom line is that a cap on tax exempt interest, whatever form it may take, is going to cost local governments and local taxpayers money.”