Howard's finances get a boost County borrows low, reinvests higher

January 07, 1993|By James M. Coram | James M. Coram,Staff Writer

Howard County has borrowed $60 million at an interest rate of 1.95 percent, the lowest in county history.

If the interest rate were fixed for 20 years, financial experts would be elevating the county's financial advisers to wizard status. But the rate is guaranteed for six days only, and the county gurus are merely clever.

They took the money the county borrowed and reinvested it for a month at 3.25 percent, said Dale B. Neubert, deputy director of the county Finance Department. If the 1.3 percent difference in the interest rates holds steady for the entire month, the county will earn $62,500.

The borrowing and reinvestment of large sums of money is part of a complex financial maneuver designed to maximize income and keep the county from having to dip into its general fund to pay for capital projects, said County Budget Administrator Raymond S. Wacks.

The maneuver began with the county selling $60 million Tuesday in so-called bond anticipation notes through a Baltimore investment firm.

The notes, which are backed by a letter of credit that the county has with the United Bank of Switzerland, have rates that vary from week to week over a two-year period, Mr. Wacks said.

Holders of the notes can demand payment in full at any time after giving seven days' notice, he said.

It is up to the investment firm to keep marketing the notes so that the rates remain low and payment is not demanded.

Meanwhile, it is up to the county to keep reinvesting the money at a monthly rate higher than the notes are sold for.

Last year, the county did exactly that, raising $200,000, Mr. Wacks said.

The county plans to redeem its 1991 bond anticipation notes with a bond sale in March, Mr. Wacks said.

The notes sold Tuesday will be redeemed in 1995.

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