CHICAGO — Triple-A rated Hennepin County, the richest county in Minnesota, will take competitive bids Tuesday on $60 million of new-money general obligation bonds in its first borrowing of the year.
The county had planned to offer another $60 million of advance refunding bonds, but decided Friday to pull the deal when it appeared the negative arbitrage was going to exceed any savings, officials said.
Proceeds will be used to finance a variety of capital projects that are part of a five-year capital campaign that includes $250 million of bonding.
Public Financial Management Inc. is financial advisor. Dorsey & Whitney LLP is bond counsel. All three credit agencies affirmed triple-A ratings on the county’s $881 million of unlimited-tax GO debt.
Moody’s Investors Service keeps Hennepin and nearly all Aaa counties on a negative outlook due to their potential exposure to federal budget problems.
Moody’s is in the midst of reviewing the credits’ vulnerability to the U.S. government and is expected to announce new rating actions around the end of November.
Analysts sent Hennepin officials a questionnaire on its exposure to the federal government asking, about its ability to access the capital markets, the number of federal employees and contracts, and its dependence on federal revenues, especially in the local health care industry, said Kathy Kardell, a senior administrator and financial projects manager at the county.
Kardell expects positive investor interest in Tuesday’s offering. “It’s our first bond sale in 2011, and we were given the affirmation of triple-A ratings by all three rating agencies,” she said. “We’re looking forward to a pretty strong reception.”
The county includes Minneapolis and benefits from a diverse tax base, a 6.9% unemployment rate and conservative budgeting, according to credit analysts. After a few years of struggling, it is also starting to enjoy a rebound in sales tax revenue.
The transaction comes as the county holds hearings on a proposed 2012 budget. The all-funds budget totals $1.55 billion, a 3% decrease from the current 2011 budget. The general fund budget totals $569 million. The county is expected to approve a final spending plan in early December. It operates on a calendar year.
Officials crafted the proposed budget in part during the state’s three-week shutdown and a “time of nearly unprecedented uncertainty about state funding for local government,” Hennepin County administrator Richard Johnson said in a budget memo to the Board of Commissioners.
The final state budget includes significantly lower revenues for the county than in previous years.
The proposed capital budget totals $118.6 million, 34% less than the 2011 version. Of that, $43.1 million would come from bonds, which is $15.7 million less than the current-year bonding authority. The reduced borrowing is due in part to a $12.8 million rise in the county’s annual debt service, Johnson said.