The city of Kent will save nearly $10.7 million over the next 22 years after favorably refunding both the city’s general obligation bonds and the Public Facilities District’s sales tax bonds.
The $10.7 million in savings (or about $500,000 per year) far exceeded the projected savings, according to a city media release. Mayor Suzette Cooke announced the savings at the Tuesday night City Council meeting.
Bond refunding is similar to a homeowner refinancing a mortgage to get a better interest rate, said City Finance Director Aaron BeMiller. The city is essentially issuing a new bond that will be bought by a bondholder that will charge a lower interest than the previous one. Bond refunding allows the city to swap old, higher interest debt with new, cheaper debt.
“I am extremely pleased,” Cooke said about the savings. “Thanks to the ongoing efforts of our staff and prudent decision-making by our council, we’re able to leverage our recently improved bond rating to achieve these phenomenal savings.”
Standard & Poor’s raised Kent’s rating from an AA to an AA-plus last month.
“The bond market was absolutely in our favor with low interest rates,” BeMiller said. “We wanted to take advantage of the lower interest rates and refinance these bonds. If our previous bond rating had remained the same, the estimated savings would have been $9.2 million or $1.4 million less. This illustrates perfectly the importance of having a strong bond rating.”
BeMiller said the city previously looked at refunding these bonds last year, which would have saved more than $2.4 million but decided to wait.
“The decision to wait really paid off,” BeMiller said. “We take our stewardship of tax dollars very seriously and are pleased we are able to realize these savings.”
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