By Will Stone
Other things equal, failure to include the City Hall project as planned in Oregon Bond Bank financing will lead to more expensive financing.
The Oregon Bond Bank is a pooled loan program run by the Oregon Business Development Department / Infrastructure Finance Authority. It issues revenue bonds backed by a pool of loans to local governments and on-lends the proceeds. It carries strong ratings (Moody’s Aa1 / S&P AA+). Official materials describe the advantages to borrowers as:
• Lower interest rates from the Bond Bank’s credit profile and scale.
• Shared/reduced issuance costs (typically under 1% of project cost).
• No debt-service reserve requirement.
• Documented net-present-value savings of up to ~4.7% versus a standalone issuance.
Manzanita’s City Hall / police / emergency-operations project was structured from the start around a Special Public Works Fund interim construction loan (initially ~2% interest on draws) that was always intended to be taken out by a longer-term Oregon Bond Bank loan (planned 20-year term). City documents and council actions treated Bond Bank take-out as the expected permanent financing; alternatives such as a standalone full-faith-and-credit obligation or private placement were considered earlier and generally viewed as comparable to or more expensive than the SPWF/Bond Bank path for a small issuer.
However, City of Manzanita was not selected to be included in the Oregon Bond Bank pool of projects in the new bond. That’s unfortunate. As a result, City of Manzanita must most likely find an alternative to a Bond Bank bond.
A standalone tax-exempt or full-faith-and-credit issue would face higher fixed issuance costs (bond counsel, underwriting, rating, disclosure, etc.), thinner investor demand, and a weaker market perception relative to the pooled, highly rated Bond Bank structure. Those factors raise the all-in true interest cost and total debt service, other things (term, amortization, credit support, market conditions, etc.) held equal.
In short, the Bond Bank’s pooling, credit enhancement, and cost-sharing are precisely the features that make financing cheaper for small municipalities. Not including the project from that structure would forgo those advantages and produce higher financing costs.
What is concerning is the opportunity cost. Additional dollars dedicated to financing City Hall will not be there for other projects that would benefit Manzanita residents.
