Everything You Wanted to Know About Municipal Advisors - Part 2 of 3

This is the second article in a three-part series about the municipal advisory business where we answer frequently asked questions about our profession.

Who can assist public agencies with financial advice about taking on debt?

The law limits who can give financial advice to public agencies. Only a properly licensed and registered municipal advisor serving as a fiduciary and working in the best interest of the client is allowed to perform that role. Consultants, broker-dealers, underwriters, and financial advisers are prohibited from giving financial advice related to debt issuance in order to ensure that the taxpayer funds and public agency interests are properly protected.

Why and when should a public agency consult with a Municipal Advisor?

Any public agency or a non-profit organization can benefit greatly from consulting with a municipal advisor as soon as it begins to think about borrowing money. It is a good practice to consult with a municipal advisor when you are first beginning to consider project financing, as some issues have to be addressed early and may take some time to resolve. The municipal advisor will help you understand the financing options that are available and what it takes to get there, as well as to get a general idea of the market interest rates and financial market requirements. Good municipal advisors know about various federal and state subsidization programs, such as the USDA, WIFIA, TIFIA, and SRF, as well as grants, which can help your agency obtain more favorable financing terms at lower costs and interest rates. A couple of hours spent in a conversation with a municipal advisor can help you and your staff save days of research and come up with more creative ways to get your project financed.

What are the requirements for applying for municipal financing?

The purpose of the municipal financing industry is to provide efficient financing options, usually at the lower tax-exempt interest rates, to various public agencies (cities, counties, school districts, special districts, redevelopment agencies, housing authorities, public utilities, ports and airports, etc.) and non-profit organizations (private schools, colleges, and universities, charter schools, healthcare organizations, federally qualified health centers, museums, associations, etc.). To qualify for the low tax-exempt interest rates, the borrower needs to be a municipality or a qualified non-profit organization. When seeking financing, the borrower usually needs to be in a reasonably good fiscal position, have budgeting discipline, go through the process of preparing annual audited financial statements, and comply with the federal and state rules that govern issuance of municipal debt. An early conversation with a municipal advisor will help make the financing process go smoother and faster.