Citys debt issue situation explained
- Richard W. Seals
- Lake Oswego Review - Opinion
Following news of the city of Lake Oswego's Triple-A financial rating upgrades issued by Moody's and Standard and Poor's, I have received a couple of questions about these upgrades and other possible debt issues. This column is my attempt to clarify these questions in a more public arena, as this information may be useful to others who are following these issues.
One question was whether the Safeco campus acquisition, Lake Interceptor replacement, surface water projects and other future debt plans were disclosed to the rating agencies by the city. All of these details were in fact fully disclosed. The two independent rating agencies were made very clear about the city's future plans and they even specifically addressed the Safeco property purchase, the line-of-credit and plans for future debt issues in both of their upgrade letters. These letters are posted in their entirety on the city Web site at http://www.ci.oswego.or.us/finance/CreditRating.htm.
Both rating agencies were also aware that the city may pursue a $65 million sewer revenue bond issue and a $5 million Surface Water bond issue within the next few years. Evidence of this disclosure can be found in the official statement, also posted on the Web site at http://www.ci.oswego.or.us/finance/BondStatementsandDisclosures.htm. The city is currently planning for these to be revenue bonds paid for by water and surface water rate revenues respectively.
Another question involves whether it was financially wise to have borrowed from a line-of-credit to purchase the Safeco property as opposed to using existing cash reserves. From a purely financial perspective, I compared the interest earnings that the city would forego if it used its reserves (just over 5 percent) with the interest cost on the line-of-credit if we borrowed the funds instead (between 4 and 6 percent). We initially used city reserves, and then repaid them by borrowing from the line-of-credit. In so doing, this allowed the city to borrow at reasonable rates while retaining its reserve levels that continue to earn comparable interest earnings.
Our continued plan is to maintain our historic reserve levels and to use a line-of-credit to cover the Safeco campus acquisition, design costs and annual interest costs until such time that this matter goes to a public vote asking for general obligation bond authority for the entire amount.
The financial review that the two independent rating agencies conducted was thorough. Throughout the process, the city was open and honest about its current and future plans, priorities, and obligations. We are pleased with the vote of confidence reflected in Moody's and Standard and Poor's upgrades and will continue to manage our finances in a way that maintains the highest ratings possible.
Richard W. Seals is the finance director for the city of Lake Oswego.