Town Finances First Phase Of School Construction

By Steve Bigham

The Town of Newtown last week sold a $10 million tax-free municipal bond to Roosevelt & Cross Inc & Associates, a New York City investment banking firm. The money will be used to pay for the first phase of the 5/6 school construction project.

The terms of the deal call for Newtown to pay 4.23 percent interest over 15 years. The interest rate was 0.27 percent below what had been budgeted, meaning the town stands to save as much as $200,000 over the life of the bond issue.

Town officials and bankers held what is called a competitive sale on the morning of July 18 in the finance department at Edmond Town Hall. Underwriting firms were given a certain time frame in which they could submit interest rates. Five of the six bids came in over the Internet. The sixth bid came in over the phone, according to First Selectman Herb Rosenthal.

Roosevelt & Cross offered the lowest rate, beating out Prudential Securities, State Street, First Union, Fidelity Capital, and Corby Financial.

The town will pay off $675,000 per year in principal for the first 10 years and $650,000 per year for the five years after that. Newtown taxpayers will also be responsible for $356,000 in interest the first year and $392,000 in interest in year two. Interest costs decrease in each year after that. The aggregate interest payment by the town over the 15 years is $3.36 million.

People’s Bank Vice President of Municipal Banking Barry J. Bernabe said the town received one of the lowest municipal interest rates he has seen in the state this year. Part of that was because Finance Director Ben Spragg opted to pay off the bond in 15 years rather than 20.

“The shorter you keep the bond issues, the more money you save. The town is saving something like $800,000 in interest by shortening the maturity,” Mr Bernabe explained.

Roosevelt & Cross is expected to buy the bond, then sell it off to the general public.

The town is not legally permitted to borrow the entire $30 million for the 5/6 school project. Changes in federal laws prohibited towns from borrowing the money through tax-free bonds all at once. Commonly referred to as arbitrage, municipalities used to generate money off the differing interest rates.

Newtown’s bond counsel was Robinson & Cole LLP of Hartford.

Two weeks ago, town officials traveled to Wall Street to meet with representatives from Moody’s Investment Services. They were there in an effort to either upgrade or maintain the town’s AA3 bond rating. Newtown, which had its bond rating upgraded last year, managed to keep it level this time around.

Moody’s requests that communities wanting to float big money bonds give specific details as to what their plans are. Mr Spragg was asked to outline why the town was building the school and how it would alleviate school overcrowding.

An upgrade usually results in some savings. Last year, Newtown’s bond rating was upgraded from “A1” to a “AA3”

“We want to maintain our AA3 upgrade and look into being considered for AA2,” Mr Spragg said.

Moody’s last upgraded Newtown’s bond rating in 1972 when it upped the rating from A to A1.

Moody’s has 10 different bond ratings: (from lowest to highest) BAA3, BAA2, BAA1, A3, A2, A1, AA3, AA2, AA1, and AAA.