EAST GREENWICH—The town council heard Monday of its finance director’s success in soliciting bids to purchase bonds from the town in an effort to consolidate the town’s debts from previous equipment bonds. A total of six bids were received, with the winning bid going to J. P. Morgan.
“On July 13, the town sold $3,485,000 worth of school and town capital equipment bonds,” town council president Mark Schwager said. “These bonds were sold as a bank-direct purchase. The town received six bids from local, regional and national banks.”
Town director of finance, Patricia Sunderland, announced that the winning bid went to J. P. Morgan, which offered a 1.12 percent interest for the seven-year bonds.
“In conjunction with the financial advisors and bond council, we conducted the bond sale on July 13,” Sunderland said. “We’ll be closing on the bonds on July 30.”
“Those are fantastic results for us,” said town manager Andrew Nota.
The bonds consisted of roughly $2.7 million in town capital equipment bonds and $785K in school equipment bonds from a $5 million bond approved last November. The two types of bonds were combined in this instance because equipment bonds are not reimbursable by the Rhode Island Department of Education (RIDE), so the finance director sought to consolidate them.
In all, Sunderland expressed relief that the bonds were able to fetch the rates they did in the current market, which has been thrown into chaos by the uncertainties of COVID-19.
“The rates were very aggressive despite the market volatility due to COVID,” Sunderland said. “We’re still finding that the rates that they’re proposing are at historical lows, which is real good news for us.”
Sunderland also expressed to the town council that the IRS allows towns to sell such bonds with a bank to qualify so long as not more than $10 million worth of such transactions were made in a single year. The town hopes that the bond sale will prove to be one more in a series of efforts to stack up proverbial pennies in the town’s piggy bank as it attempts to weather the storm of the COVID economy.
Other moves currently being made to shore up the town’s financial security include the sale of refunding bonds from 2009 and 2012, as well as the request for auditing services from a third party to help the town ensure its finances are in proper order. In all, the finance director was happy with the end result of the sale.
“It’s a good time right now to issue,” Sunderland said.
Schwager inquired as to why banks were currently inclined to offer such seemingly favorable terms, and was met with a simple answer: Taxes.
“Do banks get a tax break with these bonds? Is that why they’re attractive to banks?” Schwager asked.
“That’s exactly right,” Sunderland said.
J. P. Morgan’s ultimately victorious bid of 1.12 percent on the bonds was well below the highest interest rate proffered by Washington Trust at 2.27 percent.
The sale of the bonds to J. P. Morgan will be finalized Thursday.