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 October 8, 1999

Experts still bullish on Boulder bonds

BOULDER — Experts remain bullish on Boulder=s municipal bonds despite an announcement this summer that linked a negative outlook to one of the city=s four outstanding issues.

AWe still have one of the highest bond ratings in the state,@ said Cappie Fine, director of the treasury for the city of Boulder.

Moody=s is one of two major Wall Street credit rating firms. The other is Standard & Poor=s. They reflect the borrower=s expected ability to repay the debt.

Moody=s Investor Service assigned an AAa1@ rating to the city=s $22.38 million parks acquisition refunding bonds and affirmed the city=s general obligation rating at AAa1.@ The rating affects $80 million in outstanding debt.

Only the grade of AAaa@ by Moody is higher. Six cities in the country have been awarded the AAaa@ rating, said Jonathan Heroux, vice president with U.S. Bancorp. Piper Jaffray, Boulder=s outside financial adviser . None of the highest-ranking cities are in Colorado.

In a report issued in July, Moody=s said the rating carries a negative outlook. It based its opinion on the Acity=s narrow financial position relative to its reliance on sales tax revenues, which are pressured due to city growth controls and upcoming retail competition nearby.@

The report cites the opening of the 1.5 million-square-foot FlatIron Crossing mall in Broomfield. The city of Broomfield projects that the new mall may bring in up to $7 million in annual sales-tax revenues.

Boulder officials recently had revised sales tax growth expectations in anticipation of the mall=s opening, slated for next August. They hope losses of an estimated $1 million per year will be partially offset by the redevelopment of Boulder Crossroads mall, scheduled for completion at the same time.

Moody=s called the city=s current reserve levels Anarrow given its economically vulnerable sales-tax revenue stream, at 39 percent of operating revenues.@ It expects the city=s effort will continue in the 1999 budget to improve its reserve levels.

The city of Boulder cut $1 million from its general fund in fiscal 1999. It anticipates undesignated and unrestricted reserves will increase to $4.56 million, or 7 percent of operating revenues, by year=s end. AMoody=s expects additional improvement in reserve levels in coming years to reflect the more flexible financial position of other cities at the >Aa1= rating,@ the report said.

It continued, AThe strength of the city and area economy, anchored by a major university, contributes to the high-quality rating. The rating also incorporates a manageable debt load with relatively rapid debt repayment.@

The report cautions, AMaintenance of the current general obligation rating will depend on the city=s ability to raise its financial flexibility over the next two budget cycles while preserving the strength of other rating factors.@

Municipal bonds draw attention among investors because they are tax-free. Municipal bonds from Colorado cities are double tax-free for Colorado residents. That is, they are free of both federal and state taxes.

Boulder has four issues outstanding. Including the Parks Acquisition Refunding Bonds, which mature in 2015, other municipal bonds are: open space acquisition refunding bonds, $17.48 million, which mature in 2013; water and sewer revenue bonds, $15.83 million, which mature in 2017; and sales tax-revenue refunding bonds for open space, $15.83 million, which mature in 2014.

In the case of Boulder=s municipal bonds, most of the investors are institutional, Heroux said. Often they are mutual fund or insurance companies, although the bonds may appeal to the retail market, which includes well-heeled individuals.

One bond costs $5,000. Retail investors often buy $50,000 in bonds at a time. Institutional investors often buy them off in blocks worth $3 million to $4 million.

In return, the bonds provide a steady income stream. They receive an annual fixed interest rate plus the principal at a predetermined maturity date.

All bonds carry some level of uncertainty. The decision to invest depends on capacity for risk, noted Heroux.

The higher rate the bond, the lower the rate of return. Likewise, lower grade bonds bring higher returns, but are more speculative.

Standard & Poor=s grades bonds in 10 levels, everything from AAAA,@ its highest grade, to AD,@ for securities that are in payment default.

BOULDER — Experts remain bullish on Boulder=s municipal bonds despite an announcement this summer that linked a negative outlook to one of the city=s four outstanding issues.

AWe still have one of the highest bond ratings in the state,@ said Cappie Fine, director of the treasury for the city of Boulder.

Moody=s is one of two major Wall Street credit rating firms. The other is Standard & Poor=s. They reflect the borrower=s expected ability to repay the debt.

Moody=s Investor Service assigned an AAa1@ rating to the city=s $22.38 million parks acquisition refunding bonds and affirmed the city=s general obligation rating at AAa1.@…

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