Eight minutes before noon yesterday, two sealed envelopes, each containing a check for $450,000, were handed to Fairfax County's top financial official as he sat in the basement of Fairfax County's Massey Building.
Five minutes later and three minutes before the deadline, Deputy County Executive James P. McDonald received a third envelope.
The envelopes contained the bids that three of the nation's largest financial institutions were willing to offer for $45 million in 20-year general obligation bonds that Fairfax County was selling. For Fairfax officials, the envelopes contained more than a clue as to how the nation's financial markets regard their county; they would also give them a reflection of how well Fairfax was doing in comparison with its rival across the Potomac: Montgomery County.
Only 24 hours earlier, Montgomery had gone to market and sold $50 million in general obligation bonds at an interest rate of 7.8999, thereby tossing Fairfax a Triple-A challenge: Would Wall Street offer Fairfax a lower--and better--interest rate?
When the clock struck noon, the Fairfax Board of Supervisors was summoned into its board room.
"Are there any more bids?" McDonald asked. When no one responded, he proceeded to rip open the three envelopes and read the offers. He and other staff members quickly retreated into a back room and telephoned the numbers to a computer in Richmond to validate the interest rates.
About 20 minutes later, McDonald reemerged and announced that Morgan Guaranty Trust Co. of New York had won the bonds with a low bid at an average interest rate of 7.68763 percent.
The board quickly voted to award the bonds to the New York bank. The total interest costs to the county will be $36.3 million.
The trick for the bidders is to set their interest bids as high as possible, while still underbidding their competitors. "In some cases, bids are won or lost in the third or fourth decimal place," said McDonald. Yesterday's bidding in Fairfax was close. Citibank N.A., another New York bank, was second at 7.7299 and Prudential Bache Corp., a major brokerage house, was third, with a bid of 7.7795.
"I think it's really great that for the first time we broke 8 percent," said Fairfax Board Chairman John F. Herrity after the sale. Last October, the county's $60 million bond issue was sold at 8.709 percent.
"Even more pleasing to the staff," said McDonald, was the fact the the Fairfax bid was under Montgomery's. The counties use slightly different methods of calculating interest, and if Fairfax used Montgomery's technique it would raise Fairfax's interest rate to 7.69119, still lower than the Montgomery rate.
"But that's still a very significant difference," said McDonald, "which obviously reflects the perception of the bidders . . . that Fairfax compared to Montgomery County is a preferable position."
Most municipalities use bond sales to raise money for land aquisition and building construction because it allows the county to spread the costs of major projects over several years, rather than charge the full costs to a single year's budget, which could force up taxes. The bonds sold yesterday will finance construction of roads, schools, fire stations, libraries, parks, county buildings, Metro and storm drainage, all of which were approved by county voters in bond referendums.