Commissioners approve bond sale for jail project

Wednesday, July 29, 2015
Tammy Helm/Tribune photo Third District Commissioner Harold Coleman, left, and Greg Vahrenberg of Piper Jaffray of Leawood, watch as First District Commissioner Lynne Oharah signs a paperwork approving the sale of bonds for the $6.8 million jail project. Commissioners voted to allow Oharah to sign the documents in the absence of Commission Chair Barbara Albright, who was unable to attend Tuesday's commission meeting.

Bourbon County Commissioners on Tuesday signed a resolution accepting the the sale of bonds for the new $6.8 million jail project.

Greg Vahrenberg of Piper Jaffray of Leawood, financial advisor for the project, attended the meeting to report the results of the sale of the bonds, which took place Monday.

"The interest rates were better than we thought they would be," Vahrenberg said.

He said interest rates are at a near record low because there have been twice as many bond issues being sold this year than last year.

"We had a long process to get to this point," Vahrenberg said.

He said state legislators took longer than expected to provide the necessary statute that allows Bourbon County to implement a retail sales tax increase to fund a new jail project. The project had to be approved by voters, which was done in April.

"Once we had those hurdles out of the way, we were then in a position to prepare the bond issue for sale," Vahrenberg said.

Ensuring the county could sell the bonds at a low interest rate was the fact that Standard and Poors issued an A rating for the project. Based on a government entity's financial history, the rating tells investors whether the bonds are a good risk.

Vahrenberg said the county also received a lower interest rate because it qualified for bond insurance, which would pay in the event the county is unable to make its loan payments. The cost of the bond insurance was factored into the bids, he said.

"It also allows them to sell the bonds at a triple-A rating in addition to the direct A rating from the county," Vahrenberg said. "I think those are a couple of factors that I think led us to a very good result."

Later, Vahrenberg said the bank that purchased the bonds, as an underwriter, will then sell the bonds to investors with the goal to sell the bonds as quickly as they can in order to make money.

"Going straight to the bottom line for the county, we ended up with interest rates better than we thought we would have and we have more proceeds for construction than we thought we were going to have going into that project construction fund," he said. "Overall, it's hard to find any reason for disappointment in terms of the outcome of the bond sale."

Five financial institutions submitted bids for the county's bonds, with BOSC, Inc., of Tulsa, Okla., being awarded the bonds. BOSC submitted the lowest interest rate of 3.061045 percent.

Other bids were from: Robert W. Baird & Co. of Milwaukee, Wisc., 3.077826 percent; City Securities Corp of Indianapolis, Ind., 3.083686 percent; Commerce Bank of Kansas City, Mo., 3.149876 percent; Wells Fargo Bank, National Association of San Francisco, Calif., 3.354985 percent.

Because of the lower-than-expected interest rate, the county will have an additional $77,000, which could be placed in the construction fund of the new jail or repurposing of the existing facility.

"It's up to the county how those dollars get allocated," Vahrenberg said. "Having a few more dollars never seems to hurt for any of our clients because you may have some change orders you might want to do."

Sheriff Bill Martin said the additional $77,000 could offset the increase in construction materials that has occurred the past few months.

"Seventy-seven thousand may not solve every problem, but it's in the right direction to give you a few extra dollars," Vahrenberg said later.

According to the bond issue ballot language, any funds remaining after construction can go towards the principle and interest, he said.

Vahrenberg also provided a sales and use tax cash flow analysis. Bourbon County will begin collecting the additional .4 percent retail sales tax on Oct. 1. The county's first debt service payment of $334,642 in 2016, will be the lowest of all payments during the 20-year life of the loan. After that, the debt service will range from $435,645 in 2017 to $558,900 in 2035, the final year of the loan.

Sales tax money collected beyond the debt service payments is scheduled to go towards operation costs. That amount can be determined by commissioners, with the most being $141,744 in 2016, then fluctuating each year in the mid-$35,000 to $40,000 range.

Vahrenberg said the county most likely will see the first sales tax payment from the state in November.