Sunday, May 19, 2024

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Commissioners issue remainder of school bonds from 2018

Alamance County commissioners have followed through on their plan to cash out the remainder of a six-year-old package of school bonds in order to raise nearly $20 million for high priority roofing and HVAC projects at area schools.

During a regularly-scheduled meeting on Monday, the commissioners voted to issue $19.5 million in bonds that had remained untouched since the local electorate approved the $150 million package in 2018 to bankroll various projects that the Alamance-Burlington school system had on the drawing board.

This newly-approved bond issue, which is scheduled to take place on May 29, will bring the cumulative haul from the six-year-old package to $170 million – or $20 million more than the face value of the bonds which the local electorate originally authorized.

The commissioners have managed to squeeze these additional funds from the package by taking advantage of a so-called “premium” – or additional revenue that the bond market has been willing to lend to the county over and above the bond package’s principal. Thanks to lower-than-anticipated interest rates, the county was able to finagle the funds for the projects that had inspired the original bond package, while keeping the county’s annual debt payments far below their budgeted estimates, which assumed a higher interest rate than the county obtained. In addition, the county’s relatively high bond rating compelled investors to dangle the promise of additional debt within the county’s pre-arranged limits – and at terms more inviting than what the county had secured on the principal.

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The commissioners had originally eschewed the idea of “taking” this premium since they felt it would exceed the tacit assumptions behind the bond referendum in 2018. Even so, the terms of this additional debt proved so alluring that the commissioners chose to issue $19.5 million in premium alongside $130.5 million in principal, thereby making up the $150 million in funds that the county’s voters had approved for the school system.

This strategy left the county with some $19.5 million in principal that the commissioners were, at first, resolved not to issue at all. They nevertheless began to eye this revenue after the school system found itself in the grip of a costly mold infestation that shined a spotlight on the need to replace dozens of aging roofs and HVAC systems at area schools.

Earlier this year, a majority of the commissioners seemed to overcome their reluctance to tap into the remaining bond principal so as to obtain funds for these HVAC and roofing projects. On Monday, the county’s governing board make this volte-face official when its members voted 4-to-0 to issue those bonds – notwithstanding their earlier commitment not to milk the school system’s bond package for more than $150 million. (Commissioner Bill Lashley was absent from that morning’s vote for health reasons).


Hurry up and wait

In the end, the board’s biggest concern when it authorized these additional bonds wasn’t the departure from their previous vow but the speed with which the school system will be able to make use of these funds.

Before Monday’s vote, commissioner Craig Turner asked the county’s administrators whether their counterparts from the school system will have “bids in hand” when the county goes to the bond market in order to expedite the proposed roofing and HVAC projects. Turner added that he’d like to see the work wrapped up before students come back from summer vacation.

Turner’s sense of urgency was later echoed by Steve Carter, the vice chairman of Alamance County’s commissioners.

“Let’s get this stuff done,” Carter exhorted his fellow commissioners. “We’re tired of seeing money sitting around at ABSS for two to three years.”

Even so, the prospect of knocking this work out over the summer seemed like a slim hope to assistant county manager Brian Baker, who pointed to the extensive prep work needed for even the simplest of the school system’s endeavors.

“It’s unlikely,” Baker went on to add, “for these things to be done this summer.”

Meanwhile, commissioner Pam Thompson declared that the constraints facing the school system should be obvious to anyone who has followed the proceedings of a joint facilities task force that has been set up to oversee the school system’s capital projects.

“It just takes a great deal of patience when you’re talking about stuff this big,” she added. “They’ve got [to follow rules laid out by the N.C. Department of Public Instruction]. That’s a whole monster in itself – the red tape.”


[Promissory] note to self?

In addition to their decision to issue this last batch of bonds on behalf of the school system, the commissioners also reached a consensus about two of the big-ticket capital projects that the county itself has in the cooker.

Earlier this spring, the county’s administrators floated the idea of an installment loan to raise roughly $10.2 million for a new computer-aided dispatch system at the county’s 9-1-1 center and to upgrade the radios that the county’s emergency services use to communicate in the field.

As an alternative, some of the commissioners had bandied about the suggestion that the county could loan these funds to itself. The backers of this proposal had pointed to the county’s plentiful reserves, which had contained some $46.8 million that was not otherwise spoken for when the last financial cycle ended in June of 2023.

On Monday, Susan Evans, the county’s finance director, effectively drove a stake into the heart of this notion by explaining just how precarious the county’s reserves have become.

Evans conceded that, when the last fiscal year drew to a close, the county’s “unassigned” savings had indeed equaled $46,767,306 – or about 23.8 percent of that year’s annual budget. She nevertheless reminded the commissioners that they have since transferred $7.4 million of those savings into the county’s capital reserves in keeping with a savings policy that allows the reallocation of funds that exceed 20 percent of the budget.

Evans added that, if the commissioners were to withdraw another $10.2 million to fund the two emergency communications projects, this percentage would plummet to 14.1 percent. Moreover, the county would need to replace those funds within 36 months in order to avoid any financial consequences. Evans went on to note that the money needed to plug this hole would amount to the equivalent of 1.36 cents on the property tax rate – as compared to .82 cents on the tax rate needed to repay a more conventional loan from a bank.

The finance director’s admonition ultimately fell like a wet blanket on any inklings the commissioners still had that it would be prudent to “borrow” $10.2 million from the county’s reserves.

“I don’t like us dropping to 14 percent,” declared John Paisley, the chairman of Alamance County’s commissioners. “It would negatively impact on our ability to borrow money and do business. I would say that we would actually need to finance those two purchases [using a conventional loan].”


Hard times ahead

Another factor that has dissuaded the commissioners from breaking the proverbial piggy bank is the sudden decline in some of the revenue sources that have traditionally replenished the county’s financial reserves.

Earlier this spring, commissioner Bill Lashley expressed his angst over a dip in the county’s sales tax receipts – whose historically higher-than-expected returns had, at one point, inspired the commissioners to urge the finance department to increase its budgetary predictions for this revenue stream.

On Monday, commissioner Craig Turner observed that the county has also seen an unanticipated drop in a state allocation that’s meant to make up for any shortfalls in a portion of the county’s sales tax receipts which are earmarked for the Medicaid program.

According to the county’s finance department, these so-called “hold-harmless” funds have come in $2.4 million below what the county had previously expected. This budgetary blow, combined with the aforementioned decrease in sales tax receipts, left Turner wondering if the commissioners should do some emergency belt tightening – as is currently taking place at the Alamance-Burlington school system.

Evans nevertheless tried to assuage the commissioner’s sense of alarm over the current year’s finances.

“I think spending will be fine through the end of the fiscal year,” she insisted. I think that in the end, when all the dust settles, we’ll pretty much even out.”

Evans went on to add that, while sales tax receipts are, indeed, lower than hoped, the county’s one saving grace is that the commissioners didn’t force the finance department’s hand when they were angling for higher revenue predictions.

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