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Oak Harbor Marina bond sale attracts no interest
An unforeseen turn in the municipal bond market may leave Oak Harbor in a tight financial position next month.
The city’s plan to pay off the $2.9 million dredging project at Oak Harbor Marina with a 20-year bond suffered a setback when attempts this week to secure a buyer at an acceptable interest rate were unsuccessful.
Officials from both the city and its bond consulting firm are optimistic that a buyer will be found soon, but the delay could put the city in an expected pinch as “hefty” invoices from the project contractor are expected later this month.
“If we find a buyer next week, we’ll be OK,” city Finance Director Doug Merriman said.
Not finding a buyer is a slim possibility, he said, but even if that does happen the city has options and won’t be left with a stack a bills and no way to pay. It may require some tricky financing, however.
State law allows cities to temporarily borrow, with interest, money from non-discretionary pots and put it into its general fund. For example, the city can use resources from its equipment rental fund to pay the contractors’ invoices until a bond-buyer is secured.
Such a loan would likely have a 1.5 percent interest rate, Merriman said.
James Nelson, a vice president with Seattle-based Martin Nelson and Company, told the Oak Harbor City Council Jan. 18 that several attempts were made to sell the bond. Not even their final offer of 5.7 percent saw a willing buyer.
He chalked up the trouble to several factors, the largest of which is “overreaction” to recent coverage by the Wall Street Journal concerning the municipal-bond market. A story last week reported that investors were continuing to purchase bonds despite warning signs of a risky market due to the shaky financial condition of many municipalities.
Nelson claimed that the coverage, combined with the three-day weekend, caused investors to shy away from bonds and for rates to go up. Also, buyers usually spend more time considering this particular type of bond, which is dependent on key factors such as strong financial practices by the city and a stable economy.
He suggested waiting at least one week before trying to sell the bond again. While that may be enough time for the market to settle, it’s not so long that the city should expect to secure a more average rate of about 4 percent.
“I can’t believe I’m saying this but hopefully it will come in under 6 percent,” Nelson said.
The results of the second attempt will be discussed at a special city council workshop next week Thursday, Jan. 27, to be held at 6 p.m. at City Hall.