Montgomery County, PA

NORRISTOWN — The Montgomery County Commissioners entered into a complex refinancing arrangement Wednesday that generated $2.95 million in savings.
The Commissioners will put $2.3 million of that money aside to cover anticipated cuts in state funding for programs operated by the County’s Children and Youth Services and Juvenile Probation departments for battered, neglected and delinquent children.
"We’re being very creative here and proactive. We are not only saving our taxpayers money, we’re using those savings to protect children who are vulnerable," said Commissioner Thomas Jay Ellis, a bond attorney with the law firm of Ballard Spahr Andrews & Ingersoll.
The Commissioners are refinancing $37.275 million in general obligation bonds that were issued in 2001 to take advantage of low interest rates available in the tax-exempt bond market.
Under federal law, those bonds can’t be refunded until 2011. The Commissioners captured the interest savings today by entering into what is called a "swap transaction" with the New York investment-banking firm of Bear Stearns & Co. The result was a $2.3 million up front savings and an anticipated savings of $580,000 over the next six years.
Local governments in Pennsylvania were granted the authority to enter into swap transactions such as this in 2003, said Ellis, who brought the change in law to the attention of his colleagues.
This is the third time that the County has been able to take advantage of the new law. The Commissioners closed a $5 million budget gap using a "swaption" refinancing in December of 2003.
They used it again in July 2004 when they borrowed $60 million for Open Space preservation and $27.5 million for capital projects and generated $8.5 million in savings for taxpayers over the 20-year life of the loans.
"Montgomery County is the only county in Pennsylvania with a triple-A bond rating and that means we are able to gain additional savings in these complex transactions," Commissioners Chairman James R. Matthews said.
"It’s added up to millions of dollars in savings for our taxpayers just in the past two years," he said.
And it will allow Montgomery County to continue providing services to children in vulnerable circumstances when cuts in state funding will leave other counties across Pennsylvania with some very tough choices, Commissioner Ruth S. Damsker said.
"Our children are our most precious commodity," she said. "I’m just glad this is available to us."
PFM is serving as financial Advisors to the County for this transaction. Saul Ewing LLP is serving as swap counsel.