By John Lanier
Editor 

Funding Options Presented For County's Capital Needs - Transylvania County, NC

 

May 1, 2017



At the joint meeting of the Transylvania County Board of Commissioners and Board of Education last Monday evening, David Cheatwood, director of First Tryon Advisors, presented all of the county’s potential major capital needs and how they could be financed.

In addition to the $93 million in estimated capital needs for the school system, Cheatwood listed several other major projects: Courthouse renovation/ addition – $16 million to $24 million, EMS station – $1.6 million, water and sewer – $10 million and Parks and Recreation facilities – $29.1 million.

The Parks and Recreation facilities were broken down into $8 million for a community park/sports complex, $19 million for a multi-generational recreation center/neighborhood park and $2.1 million for miscellaneous projects.

Cheatwood estimated the total capital needs within the county to be $150 million to $158 million, depending upon the discrepancy in spending on the county courthouse.

Cheatwood said there are two ways to fund major capital projects: general obligation bonds (GOB) and limited obligation bonds (LOB). GOBs require voter approval through a referendum while LOBs do not.

Cheatwood said GOBs are secured through the full faith, credit and taxing power of the local government whereas LOBs have a lien placed on the property being financed. GOBs are used for streets, sidewalks, greenways, community colleges, schools and courthouses while LOBs are used for government buildings, such as schools and courthouses, because investors could foreclose on the buildings if the government entity defaults.

Cheatwood said GOBs have lower interest rates and lower costs of issuance than LOBs, but that both are amortized for 20 years according to Local Government Commission guidelines.

He said LOBs have higher interest costs of 25-30 points.

He said the Local Government Commission wants all the pertinent information before any financing is done, as well as the assurance that a governmental entity has the ability to pay off a project financed through a LOB.

Board of Education Vice Chair Ron Kiviniemi asked that if a LOB allowed a project to begin earlier if the savings from escalating construction costs would compensate for higher LOB interest rates.

Cheatwood said speed is one advantage of an LOB, whereas GOBs can only be issued after a referendum during a scheduled election. The next county election is a primary scheduled for March 5, 2018.

When Commission Board Larry Chapman asked if the county could have LOBs and a GOB run concurrently, Cheatwood said they could.

Commissioner Jason Chappell asked if the county could put two or three questions regarding different GOB figures on one ballot.

Cheatwood said he had not seen that done and it would raise questions as to which GOB number would be used if two of the numbers passed. Regarding sources for repayment of the bonds, Cheatwood said sales taxes, property taxes, fund balances and debt rolloff can be used.

At the end of fiscal year 2016, the county fund balance in its general fund was $24,776,291. Of that amount, $12,458,779 or 27 percent of the general fund was unassigned. He said that money can be assigned to any project.

Debt rolloff occurs when the existing debt is repaid, thus creating the capacity to add new debt without increasing the tax rate.

According to Cheatwood’s presentation, the county currently has approximately $3.94 million in long-term debt that is comprised of GOBs and installment financing.

Cheatwood then provided three scenarios of construction and costs.

In the first scenario, all of the projects would be funded at a projected total of $157.9 million. The schools would be solely funded through a GOB while the courthouse and other projects would be funded through a combination of LBOs and the fund balance.

The county would pay for any debt service increase through property tax increases. The county would need to increase taxes 13.85 to 16.4 cents depending upon if the tax increase was phased in gradually or done in one year.

Under scenario two, only the courthouse project ($24 million) and the school projects ($93 million) would be undertaken. The courthouse would be paid with a LOB while the schools would be paid with a GOB. The projected tax increase would range from 11.4 to 15 cents per year.

Under scenario three, only the school system projects would be funded. The projected increase taxes would be from 8.3 to 11.7 cents.

School board member Alice Wellborn asked for verification that the county projects would be paid for through LOBs while the school system projects would be paid for through GOBs.

“Only the school projects would get an up or a down from the voters,” said Wellborn.

“That’s right,” said Cheatwood, adding that it is just an assumption the schools would be funded through GOBs.

He said the funding could be reversed, with some of the school projects being funded through LOBs.

“This is purely, for us, a starting point,” said Cheatwood.

School Board Vice Chair Ron Kiviniemi said that for the past 20 years, the county has paid a median of $2.7 million annually to pay off the last bond. He asked if the debt rolloff from that amount would not decrease the amount of a tax increase. County Manager Jaime Laughter said the $2.7 million is a median number and some of that money in the past few years has gone to the school system for operating costs.

“I’m not surprised as the General Assembly has pushed more responsibilities down to the county level,” said Kiviniemi.

Chapman said any one of the three scenarios requires detailed plans and those plans need to be made before moving forward.

“We’re going to have to get citizen input on what they’re willing to fund,” said Chapman.

Chapman said the school board needs to provide the details and the timeline so that the issue can be brought before the voters.

“The clock is ticking,” said Chapman. “Before we know it, the new election will be here.”

“Nobody on the Board of Commissioners that I have talked with are questioning the need,” he said. “Nobody is questioning it. We know it’s there.”

Chapman said the questions are how it will be paid for and how much the citizens are willing to pay.

“Larry, I just want to thank you for making that statement. You know the need,” said school board member Marty Griffin.

Kiviniemi asked how much money would need to be appropriated to pay for the soft costs of detailed designs, etc.

“I think a conservative number would be 12 percent,” said Chad Roberson of ClarkNexsen, the consulting firm that has been working with school board on a Master Facilities Plan.

Commission Vice Chair Page Lemel asked if the county jumpstarted projects with a LOB followed by GOB, if the lien would be placed on one building or all of the buildings funded by the LOB.

Cheatwood said the lien could be on just one building.

“You don’t have to put a lien on everything you finance,” he said.

 
 

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