Erie County to offer ‘Bills bonds’ to residents for stadium

Well, if you have at least $5,000 to invest, you can.

For one day only, the Erie County Comptroller’s Office will make “Bills bonds” available for Western New Yorkers, Bills fans and other “small investors” to purchase on the retail market.

Such a move – allowing residents to directly buy tax-exempt municipal bonds to help finance the stadium construction – is very rare for Erie County, which sells millions of dollars in bonds to institutional investors every year to finance road, bridge, sewer and other public construction projects.

“This is not normal,” Comptroller Kevin Hardwick said. “We don’t do this every generation or every two generations.”

But building a $1.7 billion NFL stadium for the Bills is not an everyday event, either, he said. Special circumstances call for a special offer.

“We’ve been insistent that the people who normally don’t buy our bonds, the people who who have supported the Buffalo Bills with their cheers and their feet frostbit at the stadium during their championship runs, and the people who have supported them with their tax dollars for 50 years, know about this opportunity and have a chance to get in ahead of the big boys,” Hardwick said.

The retail sale to individual Bills bond buyers will be only on Sept. 23, the day before the flood gates open to all other outside investors. The bonds will help finance the county’s obligation to pay $250 million toward stadium construction. Half is being paid in cash. The remaining $125 million is being paid through these bonds.

“As a Buffalo Bills fan, myself, I would think that would have meaning to some people, and I want to make people aware of the opportunity,” Hardwick said. “I’m not selling these out of the trunk of my car.”

But be aware that buying Bills bonds is much more complex than making an online Amazon purchase, and involves the use of a brokerage account. They’re also expensive, and probably a no-go for many residents already facing the prospect of much higher stadium ticket prices.

Making the sale of tax-exempt Bills bonds directly to the local residents, before institutional investors snap them up, is a heavy lift for the county’s underwriters, bond lawyers and staff, who normally only deal with large-scale, institutional bond sales. The county has created a special website, buybillsbonds.com, for the one-day sale. It is a bit of a dense read, with a Q&A that would be more meaningful to a seasoned, hands-on investor.

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“It’s as consumer friendly as our lawyers will allow,” Hardwick said.

The Buffalo News is providing its own Q&A to help the public understand the bond sale, describe the potential benefits and drawbacks, offer information about what is involved in making a direct purchase, and what the impact is on the county.

But first, Hardwick wants to be clear that he is not suggesting that the Bills bonds are a good investment for everyone.

“If they have an interest, talk with a broker and talk about the inherent risks,” he said.

Q: What kind of investment are Bills bonds, and how do people make money off of them?

A: Bills bonds are long-term municipal bonds that local governments issue when the need to borrow money for major expenses, such as county construction projects. Investors buy the bonds to loan the government money in exchange for regular interest payments, on top of their original investment – the principal – which is eventually returned.

In this case, we’re talking about municipal bonds being issued to help the county finance its portion of the Bills stadium construction costs.

The initial money you put in earns interest, which in this case would be paid out twice a year. The additional benefit of these bonds is that, in general, they are income tax exempt for New York State residents and provide predictable, tax-free income.

The bonds are expected to be issued as 25-year or 30-year bonds, which would, theoretically, provide an interest income stream for that period of time. But there is nothing preventing the county from making the bonds “callable,” meaning the bonds could be paid off early. Investors would get their full principal investment back, and future interest payments would cease. This could happen, for instance, if the county were to decide to refinance the bonds at a lower interest rate in the future to save money.

Q: What kind of interest return can I expect?

A: The initial rate of return has not yet been set, and will not be set until orders for the bonds have been placed.

However, Steven Elwell, a certified financial planner and partner with Amherst-based Level Financial Advisors, said that based on the county’s history and the bond market, in general, he would expect these bonds to earn between 3% and 5% interest. Level Financial is not involved in the Bills bonds sale, but provided The Buffalo News some broad insights.

Q: How easy will it be to buy Bills bonds when they are offered to retail buyers?

A: Not too easy. You can’t just click on a link and plunk money down. First, you have to be willing to invest a minimum of $5,000, Hardwick said.

Second, individual buyers must set up a brokerage account with one of the firms participating in the initial bond sale. That would be Jefferies, Ramirez & Co., TD Securities, Raymond James and J.P. Morgan.

Elwell said anyone interested in buying Bills bonds should set aside a couple of weeks to open and fund an account with a participating broker. The buybillsbonds.com website provides a link to request more information.

“If you just want it for the novelty, and you don’t care what the interest rate is, as long as it’s reasonable, you need to get that brokerage account up and running and funded quickly,” he said.

He noted, though, that if you want to own Bills bonds, but miss your window Sept. 23, there is a good chance these bonds will eventually become available on the secondary market.

Q: Why are the bonds being sold now, and what will they cost the county?

A: Even though the county began making payments toward the stadium last year, the county was able to delay borrowing money because it had $125 million in cash set aside for payments. That cash has now been spent.

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Hardwick said his office waited as long as possible to issue these Bills bonds in hopes that the Federal Reserve would cut interest rates before the bonds are issued, so that they cost the county less money. Interest rates have remained stubbornly high, though it appears likely that the county may benefit from a rate cut next month, before the bond sale.

These investments are expected to add tens of millions of dollars in new, interest-related debt to the county, in addition to the $125 million principal amount, which must be repaid.

County officials contend that the county has retired a lot of debt over the years and will no longer have to make big annual investments in the old stadium, so they do not anticipate county taxpayers facing adverse effects or paying more for construction costs than they were paying to maintain the old stadium. They also noted that the borrowed cash will also earn interest that will offset some of the debt expenses.

Q: Are Bills bonds a safe investment?

A: This question is different from whether Bills bonds are a good investment, but institutional investors generally do not consider Erie County municipal bonds to be risky.

Elwell said it is doubtful anyone would be likely to lose their shirts on these bonds, since the county enjoys a AA bond rating with both Standard & Poor’s and Kroll, which is considered a strong, investment-grade rating. The county has the ability to raise taxes to cover debts, and investors are free to sell their Bills bonds on the secondary market if they don’t want to keep them.

Outside investors have also indicated that they think Erie County bonds are a safe bet. When the county last issued bonds in July for its road, bridge and construction projects, Deputy Comptroller Timothy Callan said the county received $182.1 million in orders for only $44.9 million in bonds.

Q: Are Bills bonds a good investment?

A: That depends on why you want to buy the bonds. From a strict, financial gain standpoint, Elwell said, it is a little tough to make generalizations, since the exact rate of return is not yet known. Despite that, he said, Bills bonds could be a decent investment if:

• You live in New York State and fall in a federal tax bracket of 24% or higher. That threshold reflects a minimum income of $100,526 for single people, and $201,051 for those who are married and filing jointly.
• You have more cash on hand than you need to keep for emergency savings or for other short-term purchase needs, such as saving for a house.
• The bonds would make up a relatively small portion of an overall, diverse investment portfolio, like 1% to 3%, and not more than 5%.

Elwell said younger investors trying to save for retirement have many more aggressive investment options that would offer a higher rate of return.

Anyone thinking of purchasing Bills bonds should speak with their own financial planner and/or accountant to see if an investment in Bills bonds is appropriate to their situation, he said.

Q: Are there any other perks to buying the bonds?

A: Aside from interest income and bragging rights? Not really. You don’t get any special certificate or discounts on Bills merchandise or tickets, or special access to the new stadium. The bonds do not convey any stadium ownership status, and you won’t get your name added to some honor roll somewhere.

But Elwell said he recognized that not everyone may be interested in these bonds for the financial payoff.

“There’s a novelty factor to say, ‘I helped loan them money to build the Bills stadium,’ “ he said.