Auburn Sees Big Savings: Bond Rating Has Huge Impact

by | Mar 26, 2014

By John Anderson

When it was announced last week the Auburn had been given a very high bond rating (AA+) by Standard & Poor’s Ratings Services, savings in the bond

Tom Scanlon of Scanlon & Associates, LLC presents the results of his firm’s audit to selectmen on Monday night. Photo by John R. Anderson

Tom Scanlon of Scanlon & Associates, LLC presents the results of his firm’s audit to selectmen on Monday night. Photo by John R. Anderson

market were anticipated. During Monday’s Selectmen’s Meeting, Town Accountant Edward Kazanovicz explained just how much those savings are.

Two bonds were put out to bid, a ten-year bond for $11.04 million to refinance the existing debt on Auburn High School and a six-month bond for $10 million to initiate construction of the new middle school.

The low bidder for the $11.04mil bond came in at 1.96%. This translates to a taxpayer savings of $2.9 million over the life of the loan or nearly $300,000 per year. The average Auburn homeowner will see a $33 reduction in their tax bill while a commercial property worth $1.1 million will save over $200 annually.

When the bond is paid off in 2024, the high school debt will be retired.

The $10 million Bond Anticipation Note (BANS) is a short term loan and received a rate of 0.099385%. The load is needed to meet the immediate cash needs for design, engineering and construction of the new middle school. Kazanovicz said, “It is very common for municipalities to short term borrow for the first two years of a major construction project.”

$13.6 million in BANS will mature in September and will be converted into bonds with a term of 20-25 years. The town’s share of this project is about $24 million. Each time the town goes to market to sell bonds, it needs a new review from a bond rating company. There are also issuance costs when the bond is created.

The positive bond rating is very important to Auburn’s financial future. In fact, Standard & Poor has asked to use Auburn’s Management Financial Policies and five year expense and revenue projections as a model for other municipalities to follow.

Town Manager Julie Jacobson said the Auburn “needs to stay the course.” Things that could lower future bond ratings are a reduction in reserves and a compromise of the financial policies. Increased reserves and a significant improvement in socioeconomic indicators could actually increase the rating.

Tom Scanlon from Scanlon & Associates also reported their financial statement audit for FY2013 to the Selectmen. Their assessment was positive and concluded that the statement was in accordance with accounting principles generally accepted in the U.S.

Mr. Kazanovicz summed up, “The town’s improved financial position and bond rating is attributed to the hard work and efforts of a solid financial management team and strong leadership of Auburn’s Town Manager Julie Jacobson. These policies and practices will ensure future sustainability while maintaining very strong operating flexibility through increased reserves and excess levy.”