Low interest means savings for Minn. governments

Minnesota's cities, counties and school districts have saved millions by refinancing their debt at rock-bottom interest rates, one upside of the nation's economic struggles.

While there's no overall tally of statewide savings, units of governments have saved tens of millions by jumping on lower interest rates for bond debt on past construction projects. Todd Hurley, the city of St. Paul's finance director, told the St. Paul Pioneer Press for a story Monday that savings have been "astronomical" for the state's second-largest city.

It's similar to the savings enjoyed lately by homeowners who refinanced their mortgages. St. Paul reduced its total debt by 36 percent over the life of $8.8 million in bonds related to a U.S. Bank building it helped finance. The city saved another $5 million by refinancing bonds for the Lawson Building and the new police headquarters.

"We live in exciting times when we can save this kind of money," Hurley said.

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The St. Paul suburb of Woodbury refinanced bonds in May and achieved $521,232 in savings. In Forest Lake, refinancing of the city's entire debt load amounted to $725,000 in savings. Washington County in February refinanced $23.6 million in 20-year bonds issued in 2003, saving $3.8 million by getting its interest rate slashed from 4.5 percent to 1.8 percent.

Some school districts have gone on a refinancing campaign. South Washington County saved $14.6 million in nine separate refinancing efforts since 2001. In May, the Rosemount-Apple Valley-Eagan school district swapped out old bonds with interest rates as high as 4.75 percent for new 2 percent bonds - saving $3.75 million over the life of the bonds.

The state has achieved savings too. In August, Minnesota refinanced $21 million in bonds for a state retirement systems building - dropping a 5.9 percent interest rate down to 1.6 percent. That meant $9.5 million in savings.

Refinancing opportunities began to pick up about a year ago, according to Mark Ruff, a financial advisor with Ehlers and Associates, which offers advice on bonds and borrowing. Demand swelled in May and June, he said, spurred by falling interest rates.

A typical 20-year bond now carries an interest rate of about 3.75 percent - below the 5.4 percent charged in January 2011. Savings are particularly big if the borrowers have a history of well-managed finances and the coveted AAA bond rating.

Most bonds can only be refinanced on specified dates, known as "call-able" dates. When low interest rates, high credit ratings and good timing coincide, "it is an opportunity," said Jeff Solomon, director of finance and operations at Rosemount-Apple Valley-Eagan schools.

"Saving 5 or 6 percent is considered good," Solomon said. "And in excess of 10 percent? That is superb."

Ruff, the financial advisor, cautioned that despite the refinancing opportunities that all is not perfect for the budgets of local governments. The economic slowdown has resulted in drops or delays in state support for cities and schools, and investment income has fallen significantly too.

Savings from refinancing get spread over the life of the bonds, meaning there's rarely a dramatic difference in any single year's budget.

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Information from: St. Paul Pioneer Press