County plunging into bond market for new building

Traffic passes by an empty lot on the north side of Nizhoni Blvd. between Second Street and NM 602 Thursday. [photo by Cable Hoover / Independent]

By Bill Donovan
Staff writer

GALLUP — McKinley County is to going into the private sector to borrow $10.5 million to raise the funds it needs to build a new juvenile detention facility and a new city/county public safety building on 20 acres of land behind the Gallup Lumber buliding near Nizhoni Boulevard.

Kit Caldwell, the county’s bond adviser, said he couldn’t predict what kind of rates the county would be getting because “the bond market right now is so volatile.”

County Attorney Doug Decker said he couldn’t predict the interest rate either, adding that the county is hoping to get a rate that would put annual payments at between $600,000 and $800,000 a year with the actual amount closer to the $600,000.

The county plans to pay the bond back through its capital gross receipts tax, but the city itself will be coming up with a good chunk of that money.

The city has agreed to pay 75 percent of the cost to bond the public safety building, which right now is expected to end up costing between $5 million and $6 million. Added to that will be the interest payments and costs to finance the bond, so the city would be looking at paying between $250,000 and $350,000 a year of that amount.

The county could have bypassed the bond market and just borrow the money from the New Mexico Finance Authority, which is run by the state. That’s what it did to build the new county courthouse.

Sometimes, said Decker, the state has significantly better rates than going to the private sector, but that’s not the case these days, so if the rates are about the same, the private sector has a lot more going for it.

In the first place, the state has a rule about reserves. In order to borrow $10 million, it would have to have 1 1/2 times that amount in its reserves so “you have millions of dollars just sitting there doing nothing,” Decker explained.

If the state loans a county money, the state also intercepts the gross receipts payments and gets its payment before returning it to the county. This means the county may have to wait four months to get whatever gross receipts are still remaining after the payment is made.

With the private bond market, there is no reserve and there is no interception. But there is insurance.

The county would have to make a one-time payment to an insurance company to insure the $10.5 million.

But the insurance company that the county uses is now in the process of being rated by Moody’s, and until that rating is in, there’s no telling how the market will react to counties who want to be insured by this insurance company.

So instead of going out to bid last week, the county decided to hold off for two weeks until the Moody rating is in and the market stabilizes. At the same time, the county is talking to officials at Standard and Poor about updating its bond rating.

County officials are hoping that taking these steps will reassure possible investors and the county will ultimately get a decent interest rating when the bond go out to bid later this week. County commissioners will find out just how good their strategy is when the company overseeing the bond sale comes back to the commission on Tuesday with the rates.