Members of the Loudon County Commission and the school board met in a special-called meeting Wednesday to hear a presentation on how much the county can afford to borrow to fund a school building program estimated at up to $47 million.
Ron Woody, a staffer at the University of Tennessee's Community Technical Assistance Services, answered questions from commissioners and school board members and presented several funding scenarios based on different amounts and different loan terms.
Competing strategies for financing the program range from as low as $25 million over 20 years to as high as $47 million over 30 years. A key issue is whether funding any such program will require increasing property taxes.
Woody began his presentation with cautionary statements.
"Tennessee communities have some real problems with how they manage debt," he said.
Some counties have entered into long-term financing arrangements, debt swaps and other financing instruments that are not in the best interest of their residents, he said. The state Comptroller of the Treasury has been revising its guidelines for how communities mange debt, he said.
Under the new guidelines, communities that want to borrow using variable-rate loans or terms longer than 25 years need to consult a debt adviser, Woody said.
Loudon County currently is in good financial shape, he said. The county's per-capita debt is about $632, compared to the national average of about $1,200.
A $47 million loan at 5 percent over 25 years would cost about $3.3 million per year and increase the debt ratio to $1,643, Woody said.
"If you do $47 million, you are looking at a tax increase," he said.
Borrowing any amount more than $30 million for 25 years would require putting more money in the rural debt fund. Woody rejected the idea of going to a 30-year loan to get closer to the projected $47 million.
"The comptroller's office is saying we have to put a stop to this," he said.
County Commissioner Don Miller pointed out to others that the commission has to fund the entire county's budget, including additional school operating expenses and the Sheriff's Department and county jail.
Miller has suggested that he would be comfortable borrowing about $20 million or $25 million over about 20 years.
Commissioner Austin Shaver has suggested that the county could borrow more if it first paid down current debt to get the best loan terms possible. At rates of about 4.5 percent, the county could borrow $35 million over 30 years without a property tax increase.
Both Miller and Shaver agreed that a property tax increase would be required within a few years, regardless.
Officials have been wrestling for months on how best to approach a building program for the school system, most notably Greenback School, that is in need of rehabilitation.