ODOT takes advantage of low interest rates to lower debt service
In recent years, the state highway construction program has moved from a “pay as you go” program to one using bonding to make resources available more quickly than if ODOT had to rely on cash flow. As a result of the Oregon Legislature bonding new revenues in the Oregon Transportation Investment Act (OTIA) and Jobs and Transportation Act (JTA) programs, ODOT has outstanding debt with a combined principal totaling $2.15 billion.
With interest rates on government bonds at historic lows, ODOT is taking advantage of the opportunity to reduce its debt service payments through prudent management of its portfolio of bonds. Bonds are like home mortgages: lower interest rates allow for lower payments on a principal amount, and bond payments can be reduced by refinancing when interest rates are low, as they are today.
In June, ODOT refunded $200 million in bonds from the Oregon Transportation Investment Act, which will achieve a present value savings of $20.9 million – a savings of over 9 percent from the previous bonds. This is the fourth time that ODOT has refunded bonds, leading to a total savings approaching $33 million.
ODOT has also reduced its debt service by issuing variable rate bonds for a portion of its portfolio. In recent years variable rate bonds have come with lower interest rates, allowing ODOT to stretch taxpayer resources further. The lower interest rates for ODOT’s variable rate bonds has saved approximately $40 million in debt service payments, compared to a benchmark interest rate of 4 percent for fixed rate bonds.