$43 million in bonds issued by commission
Loudon County Commissioners Monday voted 9-1 to adopt a fixed-rate bond for $43 million for the school building fund. But the commission has only authorized Loudon County Mayor Estelle Herron to sell $10 million of those bonds this year for a term not to exceed 25 years.
Commissioner Sharon Yarbrough was the lone "no" vote on the resolution.
"Aren't we locking ourselves in?" Yarbrough asked about authorizing the $43 million. "Why not just approve the $10 million?"
Commissioner Austin Shaver explained the school board needs the commission to authorize the $43 million so it can show the money is there when it bids the project.
The vote came on the heels of a 90-minute workshop, where commissioners hashed out options for paying for the county's school building program, which includes building a new Greenback School, building a new middle school in Loudon and making renovations and expanding Philadelphia School's cafeteria.
"We have three big decisions to make," Shaver said.
The decisions included adopting a fixed rate versus variable rate, the length of the debt and whether to issue part or all of the $43 million for the project.
Several residents said they wanted the commission to be good stewards of taxpayers' money and supported going with a fixed rate.
"I understand where you are going, especially with the interest rates," said Wayne Schnell, a Loudon County resident. "Interest rates are as low as they're probably going to be. Even if they go any lower, they can't go much lower. "I think the fixed-rate loan is the only way to go because you've got to lock it (interest rates) in, so you know what you have 20 to 25 years down the road," Schnell said during Monday's meeting. "We're going to have inflation. We all know that is going to be coming, and if you try to go to a variable, we're going to get clobbered down the way."
Commissioner Don Miller suggested, to take advantage of this year's low bank-qualified interest rates, only issuing $10 million this year to get the project going. That, he said, would allow adequate time to study all the complex issues, one of those being the development of a debt management policy, which he said should be completed by the end of the year.
He noted only issuing the $10 million this year has many advantages:
• It will meet the project needs for several months so there won't be a delay on the project.
• It allows the commission to take advantage of lower interest rates.
• It locks the debt in a low interest rate for that $10 million.
• It gives the commission more time to study options for the remaining $33 million, such as whether to go with the fixed or variable rates, going with 20 or 25 years debt and considering the level of the debt payment versus principal payment.
"As a school board member, we are getting excited at the 25 years," Loudon County School Board member Van Shaver said. He noted if the county goes with the 25 years, the surplus could phase Phase II of the building project.
Miller warned, however, that surplus will come further down the road.
"Under that bond resolution and under the school bond statute, those bonds have to be sold at a competitive public sale, where the notice is published in financial newspapers and published over the Internet, where anybody can come in and bid on those bonds at a given time," Joe Ayres, manager and director with Morgan-Keegan, said.
This public sale procedure would disqualify the county's services loan pool, said Steve Walker, marketing representative with the Tennessee County Services Loan Program in Nashville.
"I can't bid on a public sale," he said. "It (going with a public bid process) gives us a competitive disadvantage."
However, Ayres suggested Walker put in a bid that is good for 30 days, so if the county puts out the bids for competitive public sale sometime in the next week or 10 days, and he wants to put in a proposal, then if the commission is willing to come back in and adopt one of his resolutions within that 30 days, then Ayres said he thinks Walker can participate but it would require another action by the commission.
Miller said he would not have any problem at all Ayres' suggestion.
"Let's get the best deal we can for the county," he said.
Miller said the commission also has other issues to consider.
"We are drawing down the general fund at a rate of $1.1 million a year," he said. "We can't continue to do this for very long.
"Either we need to replenish this fund by transferring funds from another area or raise taxes.
"We will need funds for future capital outlay projects - the jail expansion or Phase II of the school building program," Miller said. "The property tax rate of 34 cents going into the rural debt fund generates somewhat more revenue than needed to play the principal and interest on $43 million loan and current loans."
He said a 25-year loan would generate a surplus of about $1.1 million a year, which would solve the general fund drawdown problem. Or, the surplus could be used to provide funds to borrow another $18 million or a combination of the two.
A 20-year loan would generate a surplus of about $800,000 a year.
Schnell said he was concerned about Miller's talk about "raiding" the tax increase proceeds set aside for the school building fund for the general fund.
"The taxpayers and the commission put that money there for the schools. That 20 cents should be maintained for school projects and it shouldn't be raided for the county," he said. "We need to do some efficiencies in the county. I think you are going to have a lot of people who are going to be upset if we start raising taxes again, especially if we did a 20-cent increase over the taxes last year."