What's next? Boards hear steps for funds
By Matthew Whittle
Published in News on May 23, 2007 1:45 PM
The Wayne County Board of Commissioners and the county Board of Education seemed to come to something of an agreement Tuesday night on the need to prioritize the school system's construction and renovation projects before the funding process can continue.
But members of both also learned that there's still a long way to go, as representatives from the North Carolina Local Government Commission and the county's consulting firm Davenport & Company spent about half of the meeting explaining the steps the two boards will eventually have to take to receive approval to borrow money.
The good news, said Bob High, first vice president for Davenport, is that the county is in a good fiscal position -- something that wasn't the case when capital needs were first discussed three or four years ago.
"At that time the fund balance was quite low and the county was spending a little more than it was bringing in. At that level, it would have been difficult to get (the LGC) to approve finance for anything," he said. "Now the fund balance is up to an acceptable level."
The next step, he continued, is prioritizing all of the county's construction projects, from the Department of Social Services, to the Health Department, to the Services on Aging, to the jail and to the schools.
"You need a list of which ones are important and which ones need to come first because you can't do it all at once with the limited resources this county has," High said. "The county pretty much has its plan in place and now (the school system's) needs need to be prioritized."
From there, Vance Holloman, deputy treasurer with the State and Local Finance Division of the N.C. Department of State Treasurer, explained that the two boards would begin discussions with the LGC, which must give its approval before any municipal government can borrow money.
He acknowledged that building new schools or doing major renovations to existing schools is hard.
"School funding presents, statewide, such a challenge in North Carolina, so it's essential you have a working together of the two boards," Holloman said.
He explained that when they come before the LGC, both the school board and the commissioners must be in agreement. Even before the formal application is made, they need to have the prioritized list in hand, along with reliable cost estimates and a plan to pay down the debt.
During his presentation, High said that on a 20-year loan at 5 percent interest, if the county was to borrow all $120 million for the school system's estimated construction and initial operating cost needs at one time -- an unlikely scenario, he admitted -- it would cost approximately 24 cents on the tax rate, or one cent for every $500,000.
Other options could include using a combination of property tax, sales tax and lottery proceeds to pay down the debt.
Then, once those plans are in place, the county must decide if it wants to finance the projects through a general obligation bond, a certificate of participation or some combination of the two.
General obligation bonds, Holloman explained, "are actually a pledge of the taxing power of the county that has to be approved by the voters."
Often bonds are financed at a lower cost than certificates of participation, which, he said, "are similar to, say, your mortgage on your house. Your resource is your asset."
The certificates, however, can be approved solely by the commissioners and often allow for faster processing.
Then, Holloman said, once the financing measures are in place, before the debt is issued, the county will need to have all land purchase options, bids and permits in place.
Overall, it's a process that could take months, County Manager Lee Smith said.
"I was pleased with the meeting last night," he said. "But if (the two boards) agree and say here's the priorities, the application still has to be put together and I would expect that to take at least three months.
"Then you've got to take the application to the LGC for approval and after LGC approval you're talking four to six months (before a bond referendum or the issuance of certificates).
"So, you're talking a six- to eight-month process easy once you have an agreement, and we know the school needs can't be in the 2007-08 budget without that LGC approval, so it's going to take some time."
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