Iowa Treasurer: Refinancing debt could save state money

By Rod Boshart, Gazette Des Moines Bureau

DES MOINES - Favorable interest rates could enable the state to save $3 million in yearly financing charges on outstanding bonds for I-JOBS and prison projects by refinancing the tax-exempt bonds at about half the current rates, State Treasurer Michael Fitzgerald said Monday.

The state now pays about $55 million annually to finance the debt service on bonds issued in 2009 under the administration of Gov. Chet Culver to finance a recession-fighting I-JOBS program that pumped money into transportation projects, disaster recovery efforts, water quality and wastewater improvement projects, local infrastructure, broadband technology and alternative energy projects.

The state also has $125 million in outstanding debt remaining on a separate bond issuance to fund state correctional facilities, Fitzgerald told the Iowa Executive Council on Monday. He estimated the state could save $700,000 a year on the prison bonds and about $2.5 million on the I-JOBS by 'calling” the current bonds and refinancing the tax-exempt offerings by cutting in half the roughly 4 percent interest rates being paid.

'We're doing like every Iowan would do if they have a high mortgage interest rate on their house - let's refinance the house. That's kind of what we're doing,” said Fitzgerald. However, he said time is critical given the fluidity of interest rates, which are in the 2 percent range.

Fitzgerald told council members Monday that the competitive selection process is being waived to hire Public Financial Management - the state's financial adviser on the original bond issuances - to advise him in refunding the existing bond series and financing a new bond issuance to achieve 'significant savings.”

Fitzgerald said the process probably will take a month to six weeks.

The state issued I-JOBS bonds totaling $778 million with $644 million outstanding through 2029/2030, while the corrections bond issue through 2027 stands at $125 million – down $10 million from its inception, deputy state treasurer Stefani Devin said.

Lowering the interest rates could save the state $33.8 million without extending the I-JOBS bond repayment time frame, while refinancing the prison bonds outstanding to 2027 could save another $8.2 million over the life of the project, the treasurer's office says.

'When the advantage to the state is so great,” Fitzgerald said, 'we wanted to be prepared to make sure that if the interest rates stayed there that we could move ahead with this savings.”

Gov. Terry Branstad, an executive council member, said he supports the refinancing move to lower the debt service that takes '$55 million off the top” of the Rebuild Iowa Infrastructure Fund (RIIF) each year before any other priorities, such as water quality, can be funded.

'I prefer to do this on a pay-as-you-go basis,” the governor said, noting he is 'disturbed” by the I-JOBS repayment and opposes going 'further into bonded indebtedness” to finance current improvements needed for the State Historical Building, Wallace State Office Building, Iowa Law Enforcement Academy building or the state Capitol building dome renovation.

'We need to upgrade and improve the facilities for the long term,” Branstad said.