County Considers Options on Refinacing School Bonds
Bond refinancing options are raising more questions with county officials looking for the best money-saving route.
At a Nov. 15 meeting, the Moore County Board of Commissioners decided to table the issue for further study.
“We have so many unknowns,” Board Chairman Nick Picerno said.
It was the second time the board had voted to delay action on whether to refund about $7.5 million in series 2003 general obligation bonds at a lower interest rate. Complicating the commissioners’ decision is whether it would be a better deal simply to pay off the bonds with the capital reserve fund already totaling $7.7 million.
In a presentation to the board, representatives of the financial consulting firm Davenport & Co. reported that the county actually has about $10.6 million in general obligation bonded indebtedness from the 2003 series, depending on varying interest rates and other factors and provided the county were to continue the payout through 2021.
Of that total, $8.3 million in bonds is outstanding from the series 2003 general obligation bonds. And of that amount, $7.5 million would be eligible for advance refunding.
County Manager Cary McSwain said the county sought bids from local financial institutions and bids came in as low as 2.05 percent.
Davenport officials called attention to the refundable possibilities at an earlier meeting, but the commissioners asked for more information before making a decision. At that time, Commissioner Tim Lea proposed that the county pay off the principal due on the general obligation bonds by using the capital reserve fund. That way the county would not have to pay all that interest.
The problem with that solution is depletion of the capital reserve fund, established a few years ago to help the county pay for building projects on a pay-as-you-go basis as much as possible.
The board established the capital reserve for governmental projects (CRGP) fund a few years ago by adopting a policy whereby all funds in excess of 15 percent of the unappropriated fund balance would automatically transfer into the CRGP fund.
The Local Government Commission requires counties and municipalities to maintain a fund balance at least at the 8 percent level, but strongly recommends that they keep a much larger balance as a cushion against unexpected financial pitfalls.
As of June 30, the county’s capital reserve fund contained $7.7 million. Davenport estimates that by the end of November, the next transfer may bring the total as high as $9.9 million.
However, part of that money is already obligated, including $2.9 million as the county’s contribution to the cost of transferring the emergency communications system to VIPER narrow band. The switch to a different system was required by the Federal Communications Commission.
Further, the county owes more than $1.2 million in two loans for the Moore County Airport.
Davenport estimates that the county has $5.7 million available for refinancing of bonds or application toward a payoff of bonds.
General obligation bonds were issued for education capital projects after voters approved their issuance in a referendum. They differ from the limited obligation bonds that are issued without a vote, as was the case with the bonds used to pay for the public safety-detention center complex under construction in Carthage.
The Davenport experts summarized four potential options available to the county. One option would be to abandon the refunding effort and apply the available capital reserve fund to cover capital needs.
Another option would be to use the CRGP to void a portion of the series 2003 general obligation bonds. A third option, refunding, would refinance a portion of the 2003 bonds through a private placement refunding and apply the CRGP to fund capital needs on a pay-as-you-go basis.
Or, a fourth option would be a hybrid approach including refinancing a portion of the bonds, using part of the capital reserve fund to void those bonds, use the remaining capital reserve fund for pay-as-you-go and issue bonds in the future to meet capital needs.
“We’re trying to determine if we should take the money and pay off the debt or refinance and use it to meet other needs,” Picerno said.
No easy answers were available.
The commissioners asked a number of questions, including how long the current bank bids would be available and whether interest rates might go even lower. The Davenport people had no idea.
In addition to the county’s existing capital needs debt, the board faces decisions concerning a number of capital needs looming in the not so distant future.
Commissioner Larry Caddell immediately called attention to the absence from the capital needs list the as yet undetermined cost of renovating the Courts Facility once the Sheriff’s Office is moved from the basement to the public safety-detention center.
Questions also remain about overall expansion and improvement of the Courts Facility, which a special task force has determined must be replaced or drastically improved in the immediate future.
On a back burner and unlikely to emerge soon because of economic concerns remains the issue of building a county government office building to meet growing space needs.
Contact Florence Gilkeson at firstname.lastname@example.org.
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