As the COVID-19 pandemic guts state and local government revenue sources, Cuyahoga County is taking advantage of a historically low U.S. treasury market to fill budget gaps.
“Right now, interest rates are near historic lows, and very similar to a home mortgage when interest rates decrease, you refinance for savings,” said Bob Franz, director of public finance at the Cleveland office of Stifel, an investment bank. “A lot of municipalities are doing the same thing. They are refinancing existing debt with lower-cost debt to generating savings.”
Franz works with governments, including Cuyahoga County, to take advantage of lower interest rates available during a bond’s call — a period of time before the bond matures when it can be restructured — to reduce debt payments, in some cases by tens of millions of dollars.
This month, Cuyahoga County will finalize the final of three rounds of substantial bond refunding. The three rounds will save a nearly $50 million in interest payments beginning in 2021.
“Municipalities issue new bonds that replace old bonds and pay less in debt service,” Franz said. “The rates are very low, and that is where the savings are.”
After the pandemic-induced economic shutdown, Cuyahoga County Council in April approved the restructuring of a handful of economic development bonds worth about $28 million, saving a total of $9.3 million in debt service.
County Council voted again in July to restructure the debt connected