11/02/08 — County moving forward on school facilities

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County moving forward on school facilities

By Steve Herring
Published in News on November 2, 2008 2:00 AM

Despite a daily dose of roller coaster economic news, the county is not taking a "wait-and-see" approach to its $22 million school renovation and building project. Rather, it is continuing to lay the groundwork for it.

"It is too early to say if the economy will impact schools, but based on what I am seeing in some counties near us I am concerned," County Manager Lee Smith said. "We are in conversation right now with Davenport and Associates (a financial consulting firm) as to where we are. I think the schools are doing the right thing in getting the engineering done and the precursor things done before the bids. Then we, as a community, have to decide if we are going to that next step. Also entering into it are the guys who have the authority, the Local Government Commission, to say 'yes' or 'no.'

Smith said the commission could say "no and kill the project" or say that a certain level of the project could be done.

"The Local Government Commission is asking counties and cities to hold off on large capital projects until we get a better hold on where the market is," Smith said.

The commission's approval was required for the county's planned communication system as well. Smith said the commission "did not even question" the communications system and the county's ability to repay up to a $9.7 million loan to finance it.

Smith said county and school staff, along with their attorneys and board members are "going to have to sit down pretty quickly" to discuss the school facilities plan and its progress and potential timeline.

That is important, he said, because the county will have to complete some asbestos abatement and demolition before the work can begin on the schools.

"We are waiting for the timeline," Smith said. 'We are not signing any contacts until we have estimates in and know what the bids may look like before we ever empty a building and start tearing any down. We have got to make sure we stay in contact with the Local Government Commission as to how we look (financially). You don't want to move in a bunch of mobile units to house children and go in the spring and the commission says 'you can't borrow the money.'"

Smith said the county is keeping a close eye on finances.

"We also are looking at our revenues. What are collections like. We just recently got an assessment from the state for what they think revenues will do over the next six months to a year. So we are trying to take that into consideration."

Smith said the county informed the Local Government Commission of its school facilities plan while talking about the communications system.

"We let them know up front that we are going to come back in just a year or two with school financing and of course they wanted to know how much," he said. "We gave them some ideas."

"I think that will be an interesting next step because I am hearing some things out there from the (state) treasurer's office and Local Govern-ment Commission that concern me a little bit about financing of large projects be it schools or other county-type projects," Smith said.

Smith said the bank-qualified financing the county employed to pay for the communications system is similar to a home mortgage.

Essentially it is a mortgage on the project being funded. The government uses the land and buildings as collateral for investors who lend the money.

Smith called the school project "a bit of a different animal."

About $16.4 million will be financed while another $4 million to $5 million will be paid between the county and schools.

The county plans to use lottery and sales tax proceeds, not property tax revenues, to repay the loan for the schools. Up to $2.5 million in general reserve funds could be used as well.

There are other means of financing larger projects including general obligation bonds and certificates of need. Both processes require more time and legal work, Smith said.

General obligation bonds, which are typically issued to build schools and buy open space, must be approved in a voter referendum.

Certificates of participation, sometimes called COPs, do not require voter approval.

Since they are not backed by the government's taxing power, they come with a slightly higher interest rate, making them a more expensive way to fund projects.

In North Carolina, COPs have been used to build jails, parking decks and convention centers. In recent years, they also have become a popular way for North Carolina counties to build schools

Selling bonds depends on the bond market.

"It is even going to determine if you are going to get the money," Smith said. "There is a real pullback right now for governmental financing. We have seen over the past two weeks general obligation bonds that have gone out on the municipal market to sell and those bonds have not sold. Therefore you do not have the money for the projects."