The towns and cities of Vermont also issue debt and the Vermont Municipal Bond Bank, a state sponsored organization, was formed in 1970 to help minimize the cost of municipal borrowing.
While the bonds issued through this vehicle are not guaranteed by the state, there is a requirement to maintain a one-year debt service reserve, thus eliminating the risk of a payment default in any given year.
This debt service reserve mechanism, along with the “moral obligation” implied by the State of Vermont sponsorship, is sufficient for the Vermont Municipal Bond Bank to have a Moody’s rating of Aa2, only two notches below the State’s Aaa rating.
At the end of fiscal year 2016, the Vermont Municipal Bond Bank had 497 loans outstanding to 255 municipal entities (towns, sewer districts, school districts etc.) totaling $533.1 million.
The Vermont Municipal Bond Bank basically issues tax-exempt bonds in the municipal bond market and on-lends the proceeds to local municipal borrowers. Its total long-term debt at the end of 2016 was $563 million.
The rates available through the Vermont Municipal Bond Bank are quite attractive. In 2016, the Town of Randolph (The Informed Vermonter’s home town) issued $3 million of a 30-year bond with an interest rate of 2.997%. That looks like a pretty good deal for the taxpayers of Randolph.