03/09/11 — Lottery funds uncertainty worries county

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Lottery funds uncertainty worries county

By Steve Herring
Published in News on March 9, 2011 1:46 PM

It could be another two months before Wayne County learns the fate of state lottery funds that it has banked on to cover the principal payments on $15 million in federal bonds for major renovation projects at Eastern Wayne and Norwayne middle schools.

However, the county can ill afford to delay the bond application process without running the risk of missing the Dec. 31 deadline to have sold the bonds.

There are options to lottery funds, but any changes in the funding source would first have to be approved by county commissioners since the original vote approving the projects spelled out that lottery funds would be used.

Local Government Commission approval is necessary, too, and requires that the county designate a specific funding source, County Manager Lee Smith said.

The county budget picture is clouded by a state government that is desperate to find ways to plug a $3 billion budget hole. To that end, the state has proposed shifting a number of school expenses to counties including the cost of replacement school buses and forcing counties to assume the workers' compensation costs for state-paid public schools employees and community college employees.

The state budget proposal also reduces state-funded positions in local public school systems for administration, academic support and other non-instructional support areas. That means that to keep these positions, the counties would have to fund them.

County lottery revenues could fall victim as well. The state proposes to use most of the counties' share of lottery proceeds for state education expenses. It also eliminates the county share of the corporate income tax dedicated to the Public School Building Capital Fund.

Smith said it is too early to know how many of those proposals will make it into the final state budget.

"Although (the cost) is not ours, it becomes local money for the schools -- workers' compensation, school bus purchases, which is huge," Smith said. "I guess my biggest fear is what I don't know. I kind of feel like I am flying blind here a little bit."

The county did receive some good news last week, the state House and Senate want to have a budget by late April and to adjourn by early June.

"That would be great for the county that they will be in the budget in May and trying to finalize by June," Smith said. "Then, we would know before adoption what is true and not true. The same is true for (schools superintendent) Dr. (Steve) Taylor and the schools.

"I am hoping that is correct and that if they are going to do this they go ahead and tell me what it is going to be because I need to know before someone slams the gavel and says 'here's what you are going to live with for the next year.'"

For now, the proposed school projects seem safe, Smith said.

"I think we are still moving forward on Norwayne and Eastern Wayne."

Smith said he and Taylor are concerned that the county has obligated the projects to both boards with lottery funds at a time when the county might only get 10 percent of its allotment.

"That would mean that I would not have sufficient money to make the debt service," Smith said. "It wouldn't be there. The fallback, in order to prevent a tax increase, would have to come from debt service that I am paying off.

"We are getting ready to pay off some school debt and it is a little over $1 million (annually). When we make that final payment, that would then be available to apply toward other projects. If we think the lottery monies are not going to be there, then my recommendation would be to use that payment."

The county is on a tight schedule to apply for and to sell bonds through the federal Qualified School Construction Bonds program to finance the Norwayne and Eastern Wayne projects.

The county would use lottery revenues to pay the principal and local funds for the interest that would be reimbursed annually by the federal government to the tune of $750,000 to $800,000.

The total payment would be about $1.5 million in interest and principal.

Debt service would provide all of it and that $700,000 coming back to the county would still allow some growth and would go back into the fund, Smith said.

Smith said he has been asked if the federal government could eliminate the reimbursement. The answer is yes.

"They say they will give you the money for 17 years," Smith said. "They have thus far with communities. Will they do that? I don't know. It is an annual appropriation by Congress and I hope they would do that. Whether they do it for 1 year or 17 years -- 17 years is the max. I would say don't borrow for 1 or 20 years, borrow for 17 and get the maximum benefit of the interest coming back.

"The Local Government Commission won't accept (saying) just local funds. You have to be specific to the source because what I am obligating, even with the lottery, is the full faith and credit of Wayne County, which is the tax rate. So if all of those things fail in the future, it goes to the tax rate and you are obligating the full faith and credit of Wayne County."

Another option could be the sales tax that the schools receive.

Just a couple of years ago, the county was getting $4.5 million for the schools, Smith said. It has dropped to about $3.5 million. Of that total, some $2 million is for annual capital -- to fix sidewalks, roofs, bathrooms and for security. Using another $1.5 million for a bond payment, even though the county will get $700,000 of that back, is $3.5 million or almost "every dime" of those revenues, Smith said.

"That is their money collected by law for them, but when you borrow money for schools a portion of that automatically comes out," Smith said. "As such, the county needs to ensure that enough is left for the schools' regular maintenance. So it gets close. That makes the county and school nervous."

Looking at the bond process, the project design has to be completed first, he said.

"So let's say that is the next 30 to 40 days give or take," Smith said. "The engineers or whoever the school board sees fit to use has to apply for permits because you have to have those in hand. You have to have a pre-bid conference, then you have to advertise the bids, which are 30 to 45 days. If I look at all of those things, that puts me somewhere in June-July before I go to the Local Government Commission. I think that timing works well with where we are at on the the budget."

Smith said he has spoken with Taylor and the county's financial advisers and that he feels comfortable with proceeding if the boards chose to continue.

"The county commissioners have the ability to apply or not apply for the Local Government Commission application, which would determine whether or not you are moving forward with the bond sale," Smith said. "That is the responsibility of the commissioners.

"There will have to be some hearings and votes on applications because you are borrowing money. There will have to be another layer of approvals. If that is where we go, bonds could be sold. Then, if the LGC had it in July and you get approval in early August and you could sell bonds from late August by your deadline of Dec. 31 -- you are still safe with that deadline."