Consultants for Nez Perce County assured officials Thursday their chosen way to finance a new courthouse has a sound basis in settled law, even though some have criticized the use of “certificates of participation” for big public building projects as a way to circumvent voters.
The financial instrument can be complicated, but it is essentially a form of bond financing where certificate holders pay for the project and the county buys the building through lease payments. A typical term to repay the debt is 30 years.
County commissioners and other elected officials met with bond counsel Danielle Quade, a partner at the law firm Hawley Troxell; Eric Heringer, managing director at financial services company Piper Sandler; and Christian Anderson, vice president at Zions Public Finance. Quade said her firm worked to bring such financial instruments before the Idaho Supreme Court in 2015.
That case, Frazier vs. the Greater Boise Auditorium District, established that certificates of participation don’t violate a clause in the Idaho Constitution that prohibits municipal bodies from incurring more debt than they can repay in one fiscal year without two-thirds voter approval.
She said the court’s decision put Idaho on par with most of the rest of the country, which has long allowed such financing for large building projects that take years or even decades to pay off. Before that, Nez Perce County itself helped strengthen the use of certificates of participation as a municipal financing instrument in 2007, when it built the jail in North Lewiston. The county paid that debt off eight years early, saving taxpayers about $1 million in interest payments.
Quade also noted the decision means the county doesn’t have to go to District Court to get approval for its financing, saving time and money. And Heringer pointed out that the state of Idaho uses a similar method to finance its building projects by having the Idaho Building Authority pay the up-front costs of construction, then lease the buildings back to the state until the debt is repaid.
“It is a financing tool that has been used by the state, outside of this context, for decades,” Heringer said.
Anderson pointed out that financing large public buildings like a courthouse with a year-to-year instrument like certificates of participation still rates high with bond markets because the essential nature of such buildings makes it virtually impossible for the government agencies that use them to walk away.
Commissioner Douglas Zenner asked if the county would be able to repay the certificates early, like it did with the jail. Anderson said that while the interest rate would be locked in for the full 30-year term of the debt, early payments or refinancing are typically allowed after 10 years. Heringer said a shorter period could be built into the financing arrangement, but it could reduce some investor confidence since the returns would be lower.
Design of the new courthouse is well underway, but far from complete. Anderson asked if the county would be ready with a firm cost estimate by spring so the financing team can move forward and secure a good interest rate, which are at historic lows. But commission Chairman Douglas Havens said he didn’t know if that would happen.
The project is expected to cost somewhere upward of $40 million. At that level, using a current interest rate of 2.92 percent, the county’s annual lease payment would be $1,998,000. A $45 million project at the same interest rate would require a $2,246,000 annual payment, while a $50 million project would require a $2,495,000 payment with a slightly lower 2.91 percent interest rate.
Anderson also provided a repayment forecast that factors in an expected rise in interest rates next year in case the county isn’t ready to move forward until then. With a 3.2 percent to 3.21 percent interest rate, annual payments would be slightly higher, with $2,073,000, $2,331,000 or $2,589,000 respectively for a $40 million, $45 million or $50 million project.
“Timing is fantastic right now, in terms of issuing,” Anderson said, noting the interest rates he quoted include the base rate and all issuance costs. “These are incredibly low rates.”
In contrast, the certificates used to finance the jail carried an interest rate higher than 4 percent, and the county was still able to pay it off early.
