Separating Fact From Myth

It was brought to my attention that last week's story about the 23 million in reserves has caused a little consternation among some. I even heard that some say I was only telling "one side of the story." The numbers I reported came straight from the State Comptroller's audit report. I didn't make up the numbers. So I'm not sure how I left out any part of the story. So, let's establish the facts.

County revenues have continued to steadily grow despite the weak economy.  Below are some tables showing property tax and sales tax revenues for the last four fiscal years. Again, these numbers are straight from the Comptroller's audits.

Property Tax Revenues 2006 2007 2008 2009
County General $7,740,722.00 $7,576,147.00 $9,181,179.00 $8,190,202.00
Education $7,546,543.00 $7,889,722.00 $7,990,529.00 $9,360,026.00
Total $15,287,265.00 $15,465,869.00 $17,171,708.00 $17,550,228.00
Total Property Tax 2006 2007 2008 2009
To All Departments $17,201,447.00 $18,439,628.00 $20,418,018.00 $21,535,247.00
Sales Tax 2006 2007 2008 2009
County General $687,038.00 $723,011.00 $744,047.00 $750,978.00
Education $2,878,213.00 $2,947,815.00 $2,983,774.00 $2,876,695.00
Total $3,565,251.00 $3,670,826.00 $3,727,821.00 $3,627,673.00

You might notice that the only negative in the tables above was about a hundred thousand dollar decrease in sales tax revenues in 2009. That's a little less than a 3% decrease from the previous year and given the state of the economy, that's far better than most of the state.

According to the comptroller, property tax revenues continue to grow with only a slight decrease in sales tax. According to the comptroller, at the end of the 2009 fiscal year, the county had over $23,000,000.00 in combined reserves. According to the comptroller, the county general fund had $8,388,628.00 in reserves. Let's stop here. Let's take the worst case scenario and say that the county revenues never increase again and the county general fund looses $500,000.00 per year. At that rate, it would take 16.7 years for the county general fund to go broke. Of course this is not even realistic. Property tax revenues increase every year.

The real problem here is not a lack of revenues but a lack of spending control. Government should have to live within it's means just like the citizens who pay the taxes have to. It's so simple. If your revenues do go down, you spend less.

The driver behind this discussion is the school building program. I certainly don't consider myself a financial wizard or a mathematical genius but like you, I can add and subtract and do multiplication.  One more time, I'm going to publish the facts of the building program. Please don't take my word for it, do the math yourself. See if the numbers work out. And to those who would say I'm wrong or I only tell one side of the story, don't just say I'm wrong, prove me wrong.

The current adopted building plan consists of four projects. A new K-12 school at Greenback, A new 6-8 middle school in Loudon, combining the two existing Loudon schools as a K-5 and expanding the cafeteria at Philadelphia. Total estimated cost for all four projects including all alternates, $41,359,096.00. Alternates are options that would be nice but not necessary to the project. Total estimated cost for all four projects with no alternates, $40,671,196.00.

New Greenback School-184,268 sq. ft., $25,058,878.00 W/O, Alternates $24,668,878.00.
New Loudon Middle School-92,391 sq. ft., $12,424,218.00, W/O Alternates $12,126,318.00.
Combine Loudon Elementary & Middle. $2,500,000.00
Philadelphia Cafeteria Expansion- $1,376,000.00

Now the deductions. Commission and the school board agree the Philadelphia Cafeteria Expansion can and should be paid from Rural Debt Fund reserves. Deduct $1,376,000.00 from the amount needed to be borrowed. The school board has also decided to defer any further action on combining the two Loudon schools. The combining of the Loudon Elementary and Middle Schools couldn't even take place till the new middle school was completed. Deduct $2,500,000.00 from the amount needed to be borrowed. Total needed to borrow for the two new schools with all alternates, $37,483,126.00

For the sake of this article, let's use the highest figure of $37,483,126.00. Now we all know that this figure could be higher or lower depending on the construction and materials costs when we ever actually go to build. 

Now the money. I'm going to try to boil this down as simple as possible but it is a little complicated. The building program will be financed through fund 156, The Rural Debt Fund. The county would borrow the money and the payment on the debt would come from this fund. The information below is what Commissioner Austin Shaver has presented to the commission. I've checked, rechecked and doubled checked his facts and figures just to be sure they're right.

Currently, there are 21.21 pennies designated to the Rural Debt Fund. These are property tax pennies that were designated by commission for the building program and other debts. Using to most conservative figures possible, each of these pennies is worth $145,548.00. That means that there is $3,087,073.00 going into the Rural Debt Fund annually. 

As of February, the Rural Debt Fund had a fund balance of 6.4 million dollars. There are currently several existing debts in Fund 156:

-$3 million loan – Payoff is approximately $1.4 million;
-$1.9 million for various school projects (designs, roofs, etc…) -Payoff of the $900,000 requires approximately $700,000; -The remaining debts for new school construction, drawings, designs etc. will be rolled into the total school building program funding per the commission’s statement at the time the money was allocated;
-$12.5 million that will require 6.87 pennies to maintain payments for final payoff in 2025.

The plan would be to pay off $3 million loan and the $900,000 with current Rural Debt Fund reserves still leaving more than 4 million in fund balance. This would leave just the $12.5 million loan which will require about one million per year thru 2025 to pay off. Doing the math on all these numbers leave us with $2,087,000.00 per year that can be used to make a loan payment. Now remember, I'm using the most conservative revenue numbers I can to make the point. The true revenues would be somewhat higher. Just being cautious. 

How much can the county borrow and payback with $2,087,000.00 per year? It all depends on the interest rate at the time we borrow the money. Here's how it breaks down.

$41 million for 30 years @ 3% = $2,074,291.80/year
$38.5 million for 30 years @ 3.5% = $2,074,586.40/year
$36.4 million for 30 years @ 4% = $2,085,350.04/year
$32.4 million for 30 years @ 5% = $2,087,162.52/year

As you can see, the final interest rate we get will make a big difference in the amount of money we can borrow but we will not know that till commission is ready to borrow the money. Some have argued that a 30 year loan would cost too much in interest over the life of the loan. But just because the loan is for 30 years doesn't prevent earlier payoff. Certainly a 20 year loan would cost less but so too would a 10 year loan or for that matter not borrowing at all would be the cheapest way out. But whether it's your home loan or a school loan, you borrow what you can afford to pay back.

Bottom line, the amount we need to borrow for the current proposed building program is $37,483,126.00. With the funds available now, we can afford to borrow somewhere between $32.4 million to $41 million depending on interest rate. That means the school board might have to reduce the size/scope of the building plan a little. Both new schools have areas where reductions could be made if necessary. We can make the plan fit the money if commission would just give us a number. 

We're there. The plan is ready, the money's there and to be perfectly honest, there's even more revenue already available now. It would just take too long to break it down in this story but it's there.

The information above is not "my opinion" but simple facts. Please, don't just take my figures as fact. Do the math yourself and see if the figures work.