Tait Maximizing Options Hoping For Maximum Bond Savings

By John Voket

When Newtown floats its next round of municipal bond offerings Tuesday, February 15, Finance Director Robert Tait is planning to maximize the potential for interest savings. With the blessing of the Board of Selectmen February 7, Mr Tait will come to the market with two renewed bond ratings from Moody’s Investors Service as well as Standard & Poor’s.

The finance director explained to selectmen this week that unlike the last bond offering, he has since been convinced that Newtown can get many more bidders for the bonds if he presents two bond ratings instead of the one for S&P that secured historically low interest of debt service rates in 2010.

“Some bond bidders won’t bid on a single-rated entity, so we’re using two,” he said. And while the cost to seek two ratings is almost double the cost of using one, this is an area where Mr Tait feels confident Newtown will make up the difference and then some in savings because the pool of bidders will be significantly increased.

“Two agency ratings also give the bidders more confidence,” Mr Tait said before the meeting.

And for the first time in his tenure, Mr Tait will use an offering method that informs each potential bond investor of their bidding position, and permits them to advance their positions by in effect bidding down the interest rate like a reverse auction.

In previous years, the town simply put its bonds out to market, accepted its bids through an intermediary at Webster Bank, and settled the lowest interest bidders until all available offerings were retired.

“It used to be a closed system,” he said. “One bidder with one bid and nobody got any feedback.”

The new system costs the town $7,000 more to add the auction service, but again, Mr Tait is relatively certain that competitive bidding will more than make up for the cost.

The latest round of bond offerings, Mr Tait said, will fund the approved and top-ranked Capital Improvement Plan (CIP) projects that require financing in 2011.

During a pair of phone conferences with the ratings agencies last week, Mr Tait said he was able to provide good news about local revenues, which he said are coming in slightly better than expected. And Community Development Director Elizabeth Stocker, who was in on the call, was able to relate a lot of good news about economic development investments being made or anticipated in the community in the coming year.

“Both agencies asked similar questions,” Mr Tait said, including one that apparently raised at least some concern — Newtown’s continued dependence on using its municipal fund balance to offset tax increases.

“We assured both agencies that Newtown was in the process of not using its fund balance as a normal budgeting procedure,” Mr Tait said.

During the February 7 meeting, First Selectman Pat Llodra told her elected colleagues that particularly for Moody’s, the town’s continued reliance on the fund balance to reduce taxation is a “focal point of consideration.”

“Other [Moody’s rated] AA1 communities have a fund balance of nine percent or better, where Newtown is at six percent,” Mrs Llodra said. “It was stunning how strongly the issue was communicated to us with Moody’s.”

Mrs Llodra said under her leadership, she would like to see Newtown “maintain our financial discipline until we are off of it.”

Mrs Llodra understands how difficult it is for the town to accomplish that goal, going from a $2 million reliance from the fund balance, to $1 million next year to zero at the same time the town is facing a “constriction on revenues.”

Ultimately, Mr Tait believes a combination of tactical practices along with following optimal financial management will continue to prove to both the rating agencies and bond bidders that Newtown is worth the investment, with minimal risk as telegraphed by interest rates.

The finance director said all parties at the table can easily see “we’re investing in the community.”