Last week Mr. Sundstrom presented a letter published in The Courier-Herald asking, “Is Buckley getting it’s money’s worth by hiring a bond adviser?” Mr. Sundstrom’s letter posed a number of questions and appeared to represent some information as factual that is not correct.
I would like to answer Mr. Sundstrom’s questions and provide accurate information regarding the costs associated with my recommendation to retain the services of a financial adviser to represent the interest of the citizens of Buckley as we move toward selling voter approved bonds to finance the cost of building a new fire station in Buckley.
Mr. Sundstrom asks, “Why is that person (the city of Buckley’s chief financial officer) not handling the financial end of this transaction?” The truth is the city’s chief financial officer will be actively involved in the entire bonding process – from the sale of bonds through payment to retire the bonds.
Mr. Sundstrom asks, “Why do they (city of Buckley) need to hire an additional person to tell them about bond rates?” The answer is we don’t and I did not recommend the services of a financial adviser to tell us about bond rates. The role and scope of work of services the financial adviser will provide to the city of Buckley is well defined in writing. The financial advisor will assist the city in selecting an underwriter to sell the bonds; will provide guidance to the city and negotiate with the underwriter how the bonds will be structured with the best interest of the taxpayer being priority; will prepare and process the city’s bond rating with Moody’s Investors Services or Standard and Poor’s Corporation – depending on which firm will provide the best bond rating to reduce the costs to taxpayers; and during the pricing of the bonds will negotiate with the underwriter fees and charges, interest rates, call provisions, yields and other parameters typically determined at or near the time of pricing the bonds. These details can be very complex and I believe the expertise and services of a financial advisor will benefit the citizens of Buckley through financial savings over the term of the bonds.
Mr. Sundstrom asks, “Why will the total estimated fees equal $50,000 to $125,000? What will that buy and is what it buys necessary?” The fact is, the written agreement for the financial adviser’s services specifies the cost will not exceed $6,500. For this cost, the financial adviser will provide the following:
Assume overall coordination of the bond financing process.
Recommend to the city whether to sell the bonds through a negotiated or competitive sale.
Assist the city in the selection of an underwriter for the bonds, assuming a negotiated sale.
Assist the selected underwriter in developing a local sales plan for the bonds.
Review and provide comments on the bond ordinance, official statement and other financing documents.
Assist the city in applying for a bond rating for the issue, including preparation of the rating presentation.
Provide recommendations to the city on the structure of the bond issue and calculate the projected levy rate.
Recommend to the city whether or not to apply for bond insurance for the sale.
Identify the advantages and disadvantages of selling Build America Bonds.
Mr. Sundstrom asks, “If the winning award bidder for bond sales cannot make expenses from the commission on the bond then why should we subsidize them?” Any underwriting service chosen will charge fees and commissions – that is how an underwriter makes money. By having the services of a financial adviser who has no interest in how much money an underwriter makes from the sale of bonds, we have someone with the expertise about bond related costs who can look for what is in the best interest of the taxpayers who voted to approve those bonds.
I recommended the City Council authorize an expenditure of not to exceed $6,500 to retain the services of a financial adviser. The sole basis of my recommendation is the potential to save taxpayers money. A financial adviser has the expertise and relationships to be in a better position to negotiate with an underwriter than the city would on its own. To put this in perspective, using today’s average bond rate, if the financial adviser negotiates a .01 percent lower rate, the cost savings to taxpayers is $10,570; negotiating a .05 percent lower rate the cost savings to taxpayers is $52,790; if a .1 percent lower rate can be negotiated the cost savings to taxpayers is $105,423.
Mr. Sundstrom stated, “It’s not hard to recognize the chief is anxious to get things going, but let’s get our money’s worth.” I couldn’t agree more and that is exactly what I am making sure happens.
I encourage anyone with questions about the new fire station project to come and visit at the fire station. I am committed to answering any questions, whether they concern the new fire station or any services your fire department provides.
Alan Predmore
Fire chief
City of Buckley
