CHICAGO — Triple-A rated Hennepin County, Minn., today competitively sells $80 million of new-money general obligation bonds to raise funds for an ongoing five-year capital program that was scaled down to $757 million from $900 million to help address a budget crunch.
The county, which includes Minneapolis, will issue tax-exempt debt for maturities through 2018 and taxable Build America Bonds for maturities between 2019 and 2029, according to Hennepin investment and debt manager John Villerius. The county will apply for the federal government’s direct-pay interest subsidy.
The county had intended to sell $21 million of advance refunding bonds, but the savings levels have shrunk in recent weeks to close to the minimum 3% present-value threshold imposed on municipalities in Minnesota, so the series was pulled. Public Financial Management Inc. is financial adviser and Dorsey & Whitney is bond counsel.
Last week Hennepin sold about $115 million of advance refunding bonds, capturing a true interest cost of 2.83% for about $7.2 million in present-value savings that will help ease pressure on its property tax levy. Officials separated the refunding pieces based on the provisions in the federal stimulus program that provides for differing tax treatments for the refunding of bonds issued before and after 2004.
Proceeds will fund various projects included in the county’s capital program. The county board next month is expected to approve a scaled-back five-year program of $757 million that relies on $484 million of borrowing in coming years. It was reduced from the $932 million program adopted last year that had relied on $680 million of bonding.
“Our revenue problems are mostly due to state funding unallotments,” Villerius said. To address Minnesota’s budget crisis, Gov. Tim Pawlenty cut funding — actions referred to as unallotments — to local governments, including $16 million to Hennepin in fiscal 2009.
The county drew down its budget reserve by $10.7 million last year. The general fund balance remains strong at $150 million, or 30% of expenditures. Officials expect to close out the current year with break-even results after undertaking a series of spending cuts.
Hennepin expects to raise its levy by 3% in 2010 to generate revenues to offset a loss in revenue due to volume declines at the county medical center. Already facing a $12 million loss in state aid in 2010, the county has the ability to raise the levy by up to 4.95% if hit with further state funding cuts.
Though strained by state cuts and increased public safety and social services costs, Hennepin County has been weathering the recession better than many governments. Its September unemployment rate is 7.3%, up from 5.5% a year ago but below the national rate of 9.5% that month.
Ahead of the county’s debt sales, all three rating agencies affirmed Hennepin’s top ratings on its $522 million of GO debt. The county’s credit benefits from prudent and conservative fiscal management and operations, a strong general fund balance, sizable reserve levels, and a diverse and broad economic base, Fitch Ratings wrote.
Moody’s Investors Service raised concerns, however, over the long-term pressures facing the county. “Although county officials report that general fund operations have stabilized in recent months, Moody’s believes that further structural imbalance and reserve use may impact the county’s credit quality,” analysts wrote.