Boulder seeks to ‘tell story’ behind utility debt with change in bond sales

October 27, 2013

Boulder Daily Camera

Boulder voters are being asked this fall to allow the city to use negotiated rather than competitive bond sales when the City Council deems it appropriate.

The city charter has required competitive bond sales for years, and with its strong credit rating, the City of Boulder’s general obligation and revenue bonds perform well in the marketplace.

However, a new city electric utility wouldn’t have a track record — financial or otherwise — to reassure investors. What it would have is a story based on the city’s modeling efforts, a story of a new kind of electric utility that supplies more than half its power from renewable sources while maintaining good financial performance.

A bond sale to finance the start of a potential new electric utility is just the kind of situation where a negotiated bond sale is appropriate, Boulder Finance Director Bob Eichem said.

The Boulder City Council unanimously backed placing Issue 2F on the ballot to allow for negotiated bond sales when the City Council determines it is in the city’s best interests to do so.

Negotiated bond sales are used for the majority of public bond issues in Colorado — 82 percent in 2003 and 2004, according to a study by Mark Robbins and Bill Simonsen of the University of Connecticut — including in situations where the bonds are highly rated and likely would do well in competitive sales.

Negotiated bonds have a questionable history in school bond elections, where underwriters often contribute substantially to and even run school bond elections in a practice known as “pay-to-play.”

Though many experts in public finance believe negotiated bond sales are overused, they generally agreed that situations like Boulder’s, where the debt would be issued for a new entity without a track record, are the ones where a case can be made.

Professor Mac Clouse of Denver University’s Daniels College of Business said underwriters are highly motivated to sell bonds, whether the sale is competitive or negotiated, and they would “tell the story” behind the bond either way.