Friday, July 12, 2024

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Graham, NC 27253
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Taxpayers: Follow the commissioners’ shell game carefully, because it’s going to cost you more money

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We’re convinced that sometimes public boards deliberately try to make information revealed at their meetings complicated – to obfuscate, obscure, and confuse – so that the average taxpayer cannot follow along.

Nowhere is that tendency more evident than this week’s county commissioners’ discussion about bonds, and specifically the $150 million that the county’s voters approved in 2018 for ABSS.

An average layman would assume that bonds would be issued, as stated in the ballot initiative, which in the case of the school system’s bonds, stipulated that the voters were “authorizing a sum “not exceeding $150 million.”

But, ah, the fine print.

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The bond order that the county commissioners had passed before the election made the distinction that the $150 million cap applied to the “aggregate principal amount” of the bonds.  Now,  county bureaucrats, the county’s financial consultant, and even  the commissioners, are relying on this throwaway phrase  to pull one over on the hapless taxpayers, who, inevitably, don’t follow the nuances of high finance very carefully or well.

Taxpayers often just trust what they’re told – even when they’re told only half of the story.

The conclusion to this tale of deception hinges on something called “premium,” which in the context of general obligation bonds, refers to additional revenue that the bond market sometimes offers to lend a borrower on top of the face value of a bond package.

This premium is money that the borrower is expected to pay back.  It is a “debt” by any conventional sense of the term. But the mavens of public finance choose to distinguish it from the “principal” of a bond package, and in doing so, provide a convenient loophole for any city or county that wants to get around – i.e., exceed – the ceiling that voters thought they had set when they approved the bond referendum.

The money that’s labeled as “premium” is loaned out to a borrower at somewhat more favorable terms than the principal. In the case of the school system’s bonds, the county apparently obtained a slightly lower interest rate when it issued the first $130.5 million of the bond package which the voters approved, and “took” another $20 million in premium to make up the $150 million that the board of commissioners had pledged to the voters that they would obtain for the school system’s use.

So far, so good.

But now, the commissioners are looking to issue the remaining $19.5 million of the bond package’s face value, bringing the total sum that they’ve borrowed to $170 million or so.

It’s a bit like a homebuyer who wants to buy a $150,000 home and seeks a 20-year loan for that sum, and is, instead, steered toward a $170,000 home on the grounds that the bigger loan comes with a better interest rate and the monthly payments will be “about the same.”

So, to get back to the issue of bond “premium,” it is, on the one hand, not “costing” the taxpayers any more to cover the debt service (than it originally would have), as some commissioners have been wont to emphasize in their discussions.

But then, the question becomes: who should reap the advantage of the lower interest rates – the taxpaying public, or the government?

Who’s going to “profit” from the lower interest rate?

While it may be true that the county’s annual debt payments will still be within the original budget set by the commissioners, the net result is that taxpayers will pay more over the long run than they would if  commissioners kept to the $150 million original price tag of the bond referendum.

To their credit, commissioner chairman John Paisley, Jr. and commissioner Bill Lashley hinted, obliquely, at the fact that the county’s debt payments would be even lower without the addition of “premium,” but they were too mild-mannered in summarizing the issue, in our opinion.

Since the bond referendum in 2018, we’ve watched as the commissioners originally said they would stick to the $150 million price tag – even as higher priced options were being pushed by the county’s administrators and consultants.

Their original resistance to the higher-priced option would have allowed taxpayers to “pocket” the savings from the lower-than-budgeted interest rates that the county would received when it issued the bonds.

But this week, they seemed to be leaning toward the higher-priced option – with the typical, predictable impact on taxpayers: increasing the long-term pressure for higher taxes.

Taxpayers, beware.

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