09/30/08 — County building projects not yet in danger

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County building projects not yet in danger

By Steve Herring
Published in News on September 30, 2008 1:55 PM

Wayne County's pending $10 million emergency communications system and $23 million school renovation and construction projects are expected to weather the fallout from the nation's financial meltdown.

That, County Manager Lee Smith, said is due to the relatively small size of the projects and the county's sound financial practices over the past four to five years that have allowed it to keep its debt low while shoring up its savings.

While larger counties in the state say the financial crisis is making it hard to borrow for schools and other projects, Wayne County could benefit because of the low interest rates that have emerged.

"There are two sides of how this will affect us," Smith said. "First of all, I think that we will be able to borrow the money for those two projects. Remember we are paying a little cash on both and thank goodness we have some cash on hand. I think we will benefit from the low interest.

"This is the time period I think we were wise to set some money aside so that we do have the money so we can borrow. That has been the big problem with some companies and government, they don't have the equity or cash to put toward projects."

Smith said municipalities across the nation tend to be, and have to be, on sound financial ground because of local government commissions.

"The second thing is I think that local governments have been, for the most part, on sound financial ground so we tend to be more of a sure bet for investors," he added.

The communications system is a relatively short-term project, about 10 years. The school project is a little longer term, but the county planned ahead by looking at using other revenue sources -- lottery money and some sales tax -- that the county is already receiving, he said.

"We also are paying down very quickly between now and 2011 the bulk of our debt," Smith said. "So I had some existing debt payments that I could apply to it if there is a problem."

The county owes less than $8 million on projects like the courthouse and schools.

Taking borrowing to the next level, say for a large school bond vote, would be another matter, he said.

"I think it is very fortunate that we are not on the ballot for school bonds in November," he said. "I think a school bond would fail because I think people are frightened and understandably. I think we all are looking at what is this going to mean for our retirements, the price of fuel and groceries.

"But I think we are kind of in a state of flux on our economy right now and people are going to kind of stand back and nobody wants any new taxes. What we tried to do was look for existing revenues, not new revenues to pay for some of these projects."

Next month's elections could seat a new board of commissioners with different priorities, he said.

"We have to give them a financial update in January and February and see what the next step is going to be on schools, that is going to be our next biggest project," he said. "If we had to go borrow $200 million today Wayne County could not do it. We don't have the financial ability to do it or the financial ability to pay it back. It would never be approved."

Smith said the county has tried to scale back on capital projects it needs, while "putting a little money aside and see where we are, what we can afford."

"I think that has been our plans for the past four to five years, and I am glad we have taken the steps we have," he said.

That is how the county is paying for the $853,000 in renovations to the Jeffreys Building. The county had set aside a specific amount over several years to pay for the project that is now under way.

In coming up with the $23 million schools project, the county used the schools board's priority list.

"However, we looked at the ones that had either a neutral or positive effect on the operating budget in that they were building schools that were more efficient, but not new schools or new things that would require new equipment or new maintenance that would cost you more in an operating budget," he said. "This is pretty neutral, and I think that was safe. We have seen for the last 24 months the economy turning down and in that case you scale down and pull back a little bit."

The nature of the emergency communications system made it impossible to scale back, he said. He added that the county received a "good" interest rate of 3.88 from the bank that will finance the communications system project.

"That is great and with schools I think we should find the same thing unless there's something else out there we don't know about," he said. "We will see what happens in the next few weeks."

Smith said the school board continues to make "positive strides" to complete its facilities plans.

"We still have to wait and see," he said. "We are going to have to apply to the Local Government Commission and make sure we are on sure footing six months to a year from now. Right now we are, but let's see where the economy goes. They are telling us we could have a downturn in (property) values. We have got (property) revaluation coming in 2011, and if we have a downturn what is that going to mean for revenue sources for the county to operate.

Compared to other counties, Wayne's debt is "extremely low," Smith said.

"That plays in our favor particularly for these first two projects that are very small," he said. "When we go to next level of borrowing for schools or a jail in the next two to five years, then you are going to be getting into some territory where all of a sudden you are going to get our debt ratio up to where you are going to be more average."

Larger counties have borrowed a "lot of money" over the last 10 years so their debt ratio compared to budget, where they have been using cash, has gone up and they are showing more debt per capita, Smith said.

Wayne County enjoys an "A+" rating from the agencies that rate a county's financial status.

"A+ is a good rating for county the size of Wayne and we have been able to maintain it," Smith said. "We have seen some that have been downgraded. Sometimes that is not your fault, it is because of the economy. It is something you have to watch. I think governments, based on what we are doing, that we will all get another (grading) look in 24 months."

"It is the smart way to start and I still think we are on the right track," Smith said. "Right now I think we are good with the projects we have."