Interim DeKalb County CEO Lee May says the county can save some $25 million by refinancing bonds at historically low interest rates, but commissioners must act quickly.
May said county commissioners’ inaction has already killed his plan to take nearly $12 million of the potential savings up front and use that money to shore up the government’s deficient reserve funds. He urged commissioners to lock in future savings before interest rates rise.
But, while May and commissioners agree that the county should take advantage of the refinancing climate, they’re far from striking a deal.
Some commissioners say they would prefer the savings to be spread out over time and want a public review of how money would be spent on county parks, libraries and transportation projects.
“The power is all in the Commission’s hands. Frankly, I think this is political gamesmanship,” May said. “Our No. 1 goal now is that we realize the benefits of a lower interest rate. Although the $12 million is off the table, we still have opportunities.”
Commissioner Jeff Rader said the county should carefully evaluate its options before rushing to refinance. Taking a $12 million lump-sum payment would put more debt on the county’s books, he said, and the county’s savings are already being depleted by initiatives to give employees a 3 percent raise and hire more police officers.
“How we take the savings and the integrity of the process involved are all important factors that can’t be discounted,” Rader said. “There are a lot of questions that wouldn’t occur anyplace but DeKalb County.”
Like refinancing a home mortgage, the county could see a windfall by adjusting how it pays off bond debt.
The main sticking point is over how DeKalb should structure the refinancing, and commissioners voted 3-2 on Nov. 4 not to approve May’s proposal.
His administration’s recommendation was to change the county’s bond repayments so that it could skip $12 million due Dec. 1 and, because of low interest rates, still save about $500,000 a year on future general obligation bond bills. He wanted to set aside that money in the county’s reserves, which are about $12 million short of having one month’s worth of emergency savings.
Commissioners who voted down that idea said they preferred to make the Dec. 1 payment as scheduled and save nearly $1.4 million a year on future general obligation bond bills.
Because it takes several weeks to close a complex bond refinancing deal, May’s plan is likely dead, even if commissioners change their votes later this month.
Jay Abrams, a bond analyst for FMS Bonds, said either refinancing method could benefit the county.
“It’s like when you win a lottery, and you can take it out over time or out front. There are merits to either,” Abrams said. “If there’s a legitimate need up front, that can make sense. On the other hand, if you take reductions over time, it takes pressure off the budget on an annual basis.”
DeKalb’s inadequate savings account has been noted by national bond ratings agencies. Fitch Ratings said in a November 2013 report it had concerns about the county’s depletion of reserves, and that the county needed to come into compliance with its reserve policy to maintain its AA- general obligation bond rating.
“In our view, the county’s reserve levels were on the somewhat low side,” said Mike Rinaldi, a senior director for Fitch who is the primary analyst for DeKalb’s rating. “The ability of the county and its commitment to maintaining a stable level of financial results and reserves are important ratings considerations.”
Besides the county’s savings account, commissioners also took issue with the spending plan for the bonds.
May has proposed spending the remaining $35 million worth of bond proceeds on a series of park, library and transportation projects, but commissioners called for a more thorough vetting of the county’s infrastructure needs.
“We sort of throw things at the wall to see what sticks … and that’s how we make policy,” said Commissioner Kathie Gannon at the Nov. 4 meeting. “I’m willing and ready to work on doing this, but I can’t raise my hand and say, ‘I’ll trust you to do that.’”
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