Pooled Refinancing Saves $8.6 Million
In February 2003, the MCIA closed its first bond transaction: a $16.89 million pooled bond sale. This refunded the pension liabilities of the county government, four municipalities and three school boards in the county. By using the MCIA, the participants collectively saved more than $8.6 million (cash basis) on their pension liabilities.
It costs money to issue bonds. For entities that needed to borrow only a small amount, pooling provided an opportunity to spread the cost of bond issuance among all borrowers. Without pooling, several entities could not refinance their pension liabilities. The fixed costs were too high and there isn’t much demand for small taxable municipal offerings.
Since this was a taxable financing, the larger dollar amount was more attractive to potential investors. The market penalty associated with smaller taxable bond offerings was eliminated.
The following is a listing of the participants and their cash savings:
- County of Morris, $3,247,904
- Roxbury Board of Education, $2, 071,151
- Roxbury Township, $1,842,049
- Mt. Olive Board of Education, $662,999
- Morris Township, $509,816
- Mt. Olive Township, $233,526
- Morris Plains Borough, $39,853
- Chester Board of Education, $20,834
In July 2003, the MCIA issued $20.87 million in Pooled Program Bonds. Washington Township Board of Education received $19.2 million for the construction of a new elementary school. By financing through the MCIA, the board saved between $75,000 and $125,000. The Benedict A. Cucinella Elementary School is now open and serving the population of Washington Township.
Capital Equipment Leasing
In July 2003, the MCIA combined Washington Township school financing with various capital equipment items from other sources. Pooling helped these other entities to finance the equipment at a significantly lower cost than if they financed on their own. Butler Borough and the boards of education in Boonton, Denville, Jefferson and Parsippany financing equipment. The equipment leasing program was open to everyone who wanted to participate, regardless of the size of their financing needs.
In March 2004, the Morris Hills Regional School District financed $43 million and the Morris County Educational Services Commission financed $4.94 million through the MCIA. This saved on the fixed costs associated with bond issuance. The County’s “AAA” bond rating ensured the lowest cost of capital. This was critical to the Educational Services Commission since previously, it had sold unrated certificates of participation to fund its projects. The Morris Hills Regional School District voters approved renovations and additions to Morris Hills and Morris Knolls High Schools in March 2003. The district estimated savings of approximately $3.5 million in interest by delaying the financing one year. Interest rates declined and financing was done through the MCIA. The savings by using the MCIA are approximately $550,000.The Morris County Educational Services Commission constructed 5 additional classrooms at its Park Lake School in Rockaway Borough, providing space for 30 additional students. An indoor pool was built, expanding its physical and occupational therapy program at the Regional Day School in Morris Township. Outstanding certificates of participation were refunded to eliminate certain restrictive covenants. The overall financing achieved substantial savings: in excess of $1.2 million on a present value basis or $1.8 million on a cash basis.
In May 2005, the MCIA issued bonds worth $19.1 million on behalf of Denville Township, the Morris County Educational Services Commission and Brick Township in Ocean County. The pooling of the three transactions allowed each entity to save on the fixed costs of issuance and the County of Morris guarantee resulted in “AAA” ratings, ensuring the lowest possible interest cost. Denville financed its new municipal building, 2005 capital needs, and permanently financed outstanding bond anticipation notes. By using the MCIA, the township had the traditional 5 percent down payment eliminated, received the lowest possible interest rate based on the county’s guarantee and had the lease payments exempted from the budget cap. The bonds were also structured around the township’s existing debt to mitigate the impact on Denville taxpayers. As a result, Denville realized approximately $200,000 in savings over an independent bond sale.
Educational Services Commission Vehicles
The Morris Educational Services Commission had such a good experience when it used the MCIA in 2004 that it came back and used the agency again. This time, the ESC financed a variety of buses and vans for the transportation of students. By financing through the authority, the ESC was able to purchase a larger number of vehicles because of the low cost of financing. The ESC borrowed approximately $1.7 million and saved $300,000 by using the MCIA. By pooling the bonding for these vehicles with the Denville Municipal Building and Brick Township Public Works equipment, MCESCOM was again able to benefit from Morris County’s AAA bond rating and spreading the fixed costs of bonding among multiple entities.
Brick Township Public Works Equipment
Brick Township used the MCIA to finance equipment for its Department of Public Works. Brick was able to use the MCIA because Ocean County does not have an improvement authority. Brick borrowed approximately $3.9 million and was able to save approximately $30,000.