Commissioners refinance jail
bonds, will save $850,000
Action cuts interest on two bonds, lowers servicing costs
By Suzanne Dean
Feb. 1, 2018
MANTI—Sanpete County will save more than $850,000 in interest and fees over the next 17 years because of action the county commissioners took late last year to refinance and change the financial arrangements on bonds for the Sanpete County Sheriff’s Complex.
“Given that we had a fairly significant tax increase, we wanted to do everything we could to reduce the amount of debt the county was carrying,” Commissioner Claudia Jarrett explained.
In 2007 and 2008, the county took on three obligations: a $6 million general obligation bond (which had been approved by voters), a $3 million loan from USDA Rural Development and an $8.35 million loan from the Utah Community Impact Board (CIB). The grand total was $17.35 million.
The general obligation or GO bond was scheduled to run for 25 years, while both the Rural Development and CIB loans were supposed to run for 30 years.
All three of the obligations were converted to bonds. The GO bond and the Rural Development bond were sold to private investors. A bond for the CIB loan remained with the CIB.
When a government jurisdiction or even a private business issues bonds, the issuer guarantees the borrower the right to hold the bonds for a stated number of years. Once that time elapses, the issuer can “call” the bonds in and pay the buyer the remaining principal due.
“All of the bonds had reached the date when we could call those bonds in,” Jarrett said. “Sometimes it’s in your best interest to call bonds in and reauthorize them at lower interest rates. We hired Zions Bank to facilitate that.”
The original interest rate on the GO bond was 4 percent. Under the reauthorized bond, the interest rate starts at 1 percent and escalates a little with each payment but doesn’t get up to 4 percent until the last three years of payoff. The overall interest rate (what the bank calls the “true interest cost,” is 3.36 percent.
The original interest rate on the Rural Development bond was 4.13 percent. Under the refinance, that rate dropped to 3.06 percent. Because of the lower interest, an amortization chart shows the bond being paid off in 2035, three years sooner than the original payoff date in 2038.
The county did not refinance the CIB bond. It stayed at its original interest rate of 2.5 percent. Nonetheless, the county was able to pay it off and reissued it. Such an action is called an “exchange.”
By “calling” and reissuing all of the obligations, including the CIB bond, the county will benefit from reduced administrative fees.
Government entities and other bond issuers generally need to hire a “trustee” to market the bonds, collect payment from the bond issuers, and send payment checks to the bond purchasers.
When the county started out, it hired Wells Fargo Bank as the trustee. But Wells Fargo was charging what the county felt were quite high trustee fees. According to Ilene Roth, county auditor, the fees were around $5,000 per year. The fees were above and beyond principal and interest payments on the bonds.
“We wanted to get out from under the trustee as well,” Jarrett says. “The trustee is now Zions, and it’s far more competitive.”
One factor that helped out with the trustee fees was that Zions decided to buy and hold the Rural Development bond itself. So there is no longer a trustee fee on that bond.
The Sheriff’s Complex on U.S. 89 just south of Manti includes the county jail; the Sheriff’s Office; and offices for the Utah Highway Patrol and the Utah Division of Adult Probation and Parole.
Payments on the bonds used to build the complex do not come entirely from county taxpayers. The county houses some federal and state inmates and gets per-diem payments from the Utah Department of Corrections and the U.S. Marshal for those inmates. It also gets rent payments for the office space it leases to the state.