Earlier this month, I announced a portion of Iowa’s IJOBS bonds were refinanced in order to save the State money. We sold new bonds and used the proceeds to pay off the bonds that were issued in 2009. The borrowing rate came in at 2.64%, nearly 2% less than the original bonds. This transaction is a lot like refinancing your house at a lower interest rate. It will save the state over $3 million in the first year and a total of $113.5 million over fifteen years. Iowa’s strong financial position and low interest rates made the refinancing a great success.
IJOBS bonds, which are paid with gaming revenues, were sold to provide millions of dollars for state and local infrastructure projects, including grants for community rebuilding after the floods of 2008. The payments on the original bonds, issued in 2009 and 2010, cost almost $55 million per year. After a partial cash redemption in 2014 and refinancing in 2016 and 2019, the cost of debt service has been reduced to approximately $46.5 million per year.
Iowa has a great story to tell. Our careful approach to financial management, diverse economy and low debt burden have helped make us one of only thirteen states to be rated AAA by all three major rating agencies. Just as having a high individual credit score can help lower your interest rate when you are refinancing your home, the state gets a similar benefit from the AAA rating.
As part of the process to sell the bonds, Iowa made credit presentations to Standard & Poor’s and Moody’s Investor Service. In addition to rating the bonds, Iowa’s overall AAA credit rating was affirmed. According to Standard & Poor’s review, the general credit characteristics of the state reflect:
- Good fiscal management and a structurally balanced budget;
- Maintenance of significant rainy day reserves;
- Average income levels, low unemployment and stable economic growth; and
- Low debt burden, low state employee unfunded pension liabilities and a minimal post-employment benefits liability.