A recent $550 million debt issuance by Denver, Colorado, included an interesting twist – the tail end, some $12 million, was set aside to be sold exclusively to residents. This portion of the offering, referred to as the Mini-Bond Program, sold out within the first hour of availability. The bonds were available for purchase online, making citizen participation easier than past attempts, when the bonds were sold directly to residents.
The city was also clear about how the funds would be used, making a concerted effort to inform the community about the purpose of the larger $550 million issuance as well as the types of projects the mini-bonds would be funding. Like Denver’s social impact bonds program, a portion of the funds from the mini-bonds were earmarked primarily for a single civic project that enjoyed broad community support, and the civic focus made the investment attractive to many residents. Other cities, including Washington, D.C., and New York, have embarked on similar journeys, succeeding through appeals to the community’s unique identity and sense of place while providing issuers with new opportunities to involve the public they serve.
This approach to raising capital is not without its challenges, primarily because it can be difficult to administer. Engaging the community directly involves taking phone calls from the public, explaining the program in detail, and answering questions. It also involves processing a large volume of applications and related paperwork for a large number of bond purchases.
Under normal circumstances, a bond issuance may have several buyers, typically institutions such as investment funds, and these organizations usually purchase many bonds at one time. The Mini-Bond Program, however, changes Denver’s role from that of wholesaler, more or less – selling large amounts to a few buyers to a retailer – to selling smaller quantities to a larger number of people, which often requires additional man hours.
Some municipalities are not equipped for such an undertaking. In fact, it could be argued that Denver’s success came, in part, from lessons the city learned in past attempts, when technology was not used as effectively. For the bond offering discussed here, the city made the necessary forms and information available online before the bond offering. It also allowed documents to be submitted electronically. Despite the inherent challenges, these changes have made a big difference, and Denver’s refined approach appears to offer promise.
More information about Denver’s mini-bond program is available on the city’s website.
Additional information on bond issuances from GFOA:
- Selecting and Managing the Method of Sale of Municipal Bonds
- Selecting and Managing Municipal Advisors
- Selecting Bond Counsel
- Selecting Underwriters for Negotiated Bond Sales Pricing Bonds in a Negotiated Sale
Related training sessions:
- Debt Management for Frequent Issuers
- Best Practices in Debt Management
- Debt 2 Course (watch GFOA’s training schedule for a repeat of this session)
- Types of Debt Instruments and Understanding Refundings (watch GFOA’s training schedule for a repeat of this session)