Officials: County will need to borrow
By Andrew Bell
Published in News on March 16, 2007 1:56 PM
Wayne County will need to borrow money to pay for school construction and other capital improvement needs, County Manager Lee Smith said, and the sale of bonds is the most likely method of obtaining the money.
A general obligation bond referendum could be ready in six months, Smith said, but all of the intangibles, such as an estimate for new schools' operating costs and the total cost of school construction, must be worked out before the process can begin.
Both the commissioners and school board members have said for several years that a bond referendum might be necessary to pay for the school board's capital improvement plan. In March 2004, Commissioner Efton Sager said county officials needed to meet as soon as possible to discuss a possible bond.
Last year, members of both boards discussed the possibility of a bond referendum, with the school board stating that its members would support a local bond issue.
But talk of a bond referendum has quieted in recent months. Following a slew of community meetings at local high schools last fall, three subcommittees were charged with assessing the most pressing needs of county schools.
One factor that has to be pinpointed before a bond referendum can presented to the public -- the total cost of the five-year plan -- has not been determined.
The school board approved a $90 million facilities plan last year that would build and renovate schools across Wayne County. But some construction costs have continued to rise and some commissioners and Smith have hinted that the facilities plan could now total more than $100 million.
The North Carolina Department of Public Instruction estimated in a 2005-06 public schools facility needs assessment that Wayne County Public Schools' five-year plan could cost closer to $219 million.
The total cost could rise even further once the operating costs of new and existing facilities are determined, Smith said.
The county will also have to consider how to handle its own $115 million in capital improvement needs, including a new jail and facilities for Social Services, Health and Services on Aging.
Determining how much money is needed is the first step in developing a bond referendum, County Attorney Borden Parker said.
State officials then tell the local government how much they can safely borrow.
Smith said he and finance director Pam Holt met two weeks ago with officials from the Local Government Commission, which is a branch of the state Treasury Department that advises local governments. During that conversation, the county was commended for preparing its fund balance for future capital costs, Smith added.
The county has about 24 percent in its fund balance reserve, which is about three times more than the state-mandated amount. North Carolina law requires a county to reserve 8 percent of its total budget to keep a respectable credit rating and to have a lower interest rate if the county decides to issue bonds.
Wayne's fund balance is so large because the county needs the borrowing power to pay for capital improvement needs, which is an inevitability, Smith said.
If the Local Government Commission gives its approval for a bond referendum, the issue can be placed on a local ballot. The commission then oversees the sale of the bonds, Parker said.
But the general public must give its approval of the referendum before any bond can be sold, Smith said. It is vital for the public to support the issue, because the public's supporting vote obligates the county to pay off the debt of that bond referendum.
If residents approve a bond referendum, Parker said the "full faith and credit" of the county is in support of the bond and that the community is willing to be taxed to pay for those bonds.
If the county was unable to pay that debt or came up short on a payment, a judge could order the commissioners to raise taxes enough to cover the debt, Parker said.
But it is unusual for a county to default on a debt, which is why many banks might be interested in underwriting the county's bonds, Smith said. Underwriters are secured by the Local Government Commission so the commission can decide the best possible way to market the bonds, Parker said. The commission can also choose as many banks as possible to underwrite the bonds, he added.
Also, before a bond referendum is decided by the public, Parker said a bond order must be issued 30 days before a vote, which allows residents to lodge complaints. Voters are also given the chance to express their opinions in a public hearing prior to a vote.
From determining the amount of the bond referendum to preparing it for the ballot can take about six months of work, which would make a November bond referendum feasible, Smith said.
But county officials would need to determine whether they want a countywide bond referendum included on this fall's municipal elections ballot.
"Timing is everything," Smith said.
County officials still need to determine the amount of a possible bond referendum and educate the public as to why that amount of money is needed. Some of that education has already begun, but Smith said more will be needed before residents hit the polls.
"The LGC (Local Government Commission) has said that you don't want a bond to fail because it can affect your financial decisions for the next three or four years," he said.
For example, a failed bond referendum could stop the county from building a new jail if it chose to do so a year or two later. Following a failed bond referendum, Smith said the Local Government Commission closely evaluates any other financial decision by a local government.
But if a bond referendum passes, the bonds would need to be sold within seven years, unless the county is granted a three-year extension, Parker said.
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