Financial Services News

Selecting Your Finance Team

Before your county issues bonds or seeks other financing solutions, a few important decisions should be considered to assure that the county has the best finance team available. The quality of the finance team will often determine the cost of a project, dictate the interest rate of a bond issue and influence the long-term management of the debt issue.

The key to optimum team selection is identifying appropriate county officials to consult on the project. For capital projects, the departments involved need representation on the internal team. For example, a county building project may include the public works director, the department leader for the occupants of the building and administrative officer representative.

The finance officer or county treasurer should be on an internal finance team to assure compliance with state and local borrowing laws, assist in the investment of proceeds and compliance with federal and state rebate laws, and selection of a trustee and paying agent.

For large construction projects, the internal team should first select its financial advisor. The financial advisor will work with the internal team, the design firm and the construction manager.

With their input, the financial advisor can size the project and determine the various financing alternatives available to the county. The financial advisor may also assist in the competitive selection of other outside finance team members. However, the financial advisor should not serve as the investment banker or the investment advisor to the project.

The financial advisor recommends the composition of the rest of the finance team. Likely members for a bond issue include an investment banker, a bond counsel and a trustee. The county may also influence the selection of the disclosure counsel, which is generally recommended by the investment banking firm.

Since the trustee will continue to be in regular contact with the county during the life of the issue, the trustee should be involved early in the process. The trustee plays a vital function in the bond issue by assisting with the indenture and reviewing the disclosure statements.

The financial advisor may also recommend using a private placement to finance a project. For many equipment projects and for smaller capital projects, a lease financing vehicle may serve the county better than a bond issue. Also, institutional investors and high net-worth individuals may be interested in financing specific projects, thus saving the county substantial up-front costs associated with bond issues.

After the outside finance team is selected, the internal team still has substantial responsibilities. Review of project design, sizing of the project, disclosure of county information to potential investors, review of documents, presentation to decision-makers, and selection of contractors or vendors may be a part of the internal team obligations.

When a project is controversial, the internal team may need a second opinion, additional advisors or additional accounting and appraisal services. Construction insurance and bonding requirements will also need to be factored into the costs of the project.

Before the final decision on a major financing is approved, the decision-making body must be assured that all alternatives have been explored, the professional finance team has completed all legal and financial examinations necessary to protect the county. And ultimately, the decision-making body must ensure that they have selected the most cost-effective process for the completion of the capital improvement.

(Financial Services News was written by Steve Swendiman, managing director of NACo's Financial Services Center.)