Take a look at this Bid Summary for a recent Kansas municipal bond issue. At the bottom of the spreadsheet (highlighted in yellow) is a measurement of the cost of the bond issue … in terms of “interest cost” over the life of the bonds.
KEY FACTORS in that “bottom line” interest cost are: the interest rate, price paid for the bonds AND the underwriter’s fees.
Notice that Bid 1 saves this local government nearly $100,000 compared to all the other bids!
If you were just looking at interest rates, Bid 4 looks attractive (with rates between 2 and 4 %). But that doesn’t include all of the bond costs.
What if this local government had not used an independent Financial Advisor (like Citycode Financial LLC)? What if this local government chose an underwriter without taking bids?
More than likely it would have cost them $100,000 or more!
Examples like this illustrate why it is important to have a truly independent Financial Advisor working for your local government when issuing bonds. Only registered “Municipal Advisors” (the term used by the feds to refer to financial advisors) have a federal fiduciary obligation to put your local government’s interest first!.
Broker-dealers, underwriters and bond counsel may sometimes be mistaken as “financial advisors,” but such parties may have conflicts of interest that may not be in the municipality’s best interests and can result in the local government paying significantly higher interest rates.
So … how can a city clerk, city manager or finance officer ensure that they have hired a truly independent Financial Advisor? Fortunately, the MSRB (Municipal Securities Rulemaking Board) has a list that helps identify who is a truly independent Municipal Advisor. To review the list, click the AdvisorCheck button.