Montgomery County, PA

NORRISTOWN — The Montgomery County Commissioners agreed to issue $87.5 million in bonds Thursday using a complex financial technique that will reduce the interest rate by more than half a percentage point, which will add up to $8.5 million savings for taxpayers over the 20-year life of the borrowing.
The proceeds will be split, with $27.5 million being used to finance the County’s capital budget and the remaining $60 million used to pay for the first phase of the $150 million Open Space program voters approved in November.
The deal the Commissioners worked out through its financial advisors and bond counsel calls for all $87.5 million to be issued initially as variable rate debt. The County will then swap out $60 million of that variable rate debt for fixed rate debt. The remaining $27.5 million will be kept in variable rate debt.
"This financing is cutting-edge, state of the art," said Commissioner Thomas Jay Ellis, who is also a bond attorney with the law firm of Ballard Spahr Andrews & Ingersoll.
Until recently, local governments weren’t permitted under state law to engage in these complex financial dealings, said Ellis, who brought the change in law to the attention of his colleagues.
Montgomery County is the first county in Pennsylvania to enter into a financial arrangement such as this.
"It will be a prototype for other large governmental financings in the Commonwealth," Ellis said.
The projected annual interest rate, including all fees and costs, is 4.02 percent compared to 4.59 percent had the county decided to issue traditional fixed rate bonds.
"Any homeowner can tell you the potential savings of more than half of a percentage point on their mortgage is huge," said Commissioner Chairman James R. Matthews, who owns Keegan Mortgage in Oreland.
The County will realize an average annual savings on its debt service of $406,785 in each of the 20 years of the borrowing, Ellis noted.
Montgomery County realized an additional savings because it has a Aaa bond rating from Moody’s, the financial rating service, and therefore does not have to purchase insurance for the transaction.
"I’ve never seen a deal like this where insurance wasn’t needed," said Marc Stein, bond counsel for the County.
"That speaks very well of the regard that the financial markets have for Montgomery County," Stein said.
The taxpayers ultimately benefit, said Commissioner Ruth S. Damsker.
"This money will be used to benefit all Montgomery County residents and I’m glad we can do this in the most cost-effective manner," she said.