County OKs bonds for schools
By Steve Herring
Published in News on September 7, 2011 1:46 PM
Daily fluctuations in federal bond interest rates Tuesday morning forced the county to scramble to make last-minute adjustments to a $15 million bond financing package for the Eastern Wayne and Norwayne middle schools construction projects, but it did not halt approval of the financing or the contractor.
The 4.57 percent interest rate quoted by BB&T was slightly higher than the federal rate of 4.5 percent that would have increased the county's payback amount. County commissioners agreed to reduce the payback time from 15 years to 14 years to lock in an interest rate of 4.33 percent.
The shorter payback time also increased the annual installment payment from $1 million to $1,071,458. The county will use lottery funds to make the annual principal payment and local dollars for the interest.
The federal government will reimburse the interest payment on the federal Qualified School Construction Bonds on an annual basis saving the county about $750,000 a year.
That reimbursement is contingent on annual federal appropriations, County Attorney Borden Parker said.
"You are going to pay the interest up front and after you prove to them you have paid it, they pay you back under the current law," he said.
BB&T will set up a $15 million project fund that can accrue interest for the county while it is waiting to spend it on the project.
The school board will put $1,071,458 into a fund that will be used to make the annual principal payment. That fund can also earn interest that would go back to the school system since the money used to make the installment payments will come from lottery or sales tax revenues earmarked for the schools.
Commissioners awarded the contract to Monteith Construction of Raleigh. Monteith submitted a bid of $14.5 million, which includes alternatives for items like an additional 20,000-square-foot classroom building for $1,963,000 and $250,000 in heating and air conditioning renovations to the cafeteria and gym at Norwayne and $227,000 for heating and air conditioning renovations to the cafeteria and gym at Eastern Wayne.
The base bid for both schools is $11,947,000. The alternates add another $2,576,200. Contingency and related costs account for another $560,696 and an estimated $81,500 in bond fees boost the total to $15,165,396.
Of that total, $15 million will be financed, while $165,396 would come from local sales tax reimbursement on items the county purchases for the projects.
Another $1,264,636 in additional costs fall outside of what would be paid for by the bonds, making the total project $16,430,032.
The board of education will deed the two school properties to the county to be used as collateral. The county will in turn lease the properties back to the school board.
The property transfer and bond sale also must be approved by the Local Government Commission. That approval is expected to be sought by early October, and once the contracts are signed, possibly by November, construction could be under way by early January.
During a brief public hearing Tuesday morning, school board member Arnold Flowers and Superintendent Dr. Steve Taylor asked commissioners to support the project.
Flowers said the schools needed to be worked on.
"I realize there are different opinions as to whether we should do this or not do this," he said. "But these schools are at a point where we need to do something."
Commissioners did not act immediately after the hearing, but waited until after 10 a.m. when the federal government's treasury rates were announced.
Commissioner Jack Best said the county is getting a "good deal" selling bonds. However, Best was the only board member to vote against the package renewing his argument that the county should be in the business of building new schools, not patching old ones.
"I am going to vote against it, not because the project bids aren't good," Best said during the board's agenda briefing. 'They are good bids. They came in under. We got all of our alternates. Everything is in good shape. It seems to be a good contractor. The financial documents seem to be a hell of a deal if, in fact, the government pays us the interest back.
"The reason I am going to vote against it, I am still concerned that in the next 20 years this county is going to have to build or rebuild 10 new schools. For us to patch one of these schools, that is just patchwork. I don't believe in patchwork."
Best said the county is going to be spending $6.5 million at Eastern Wayne Middle School and will continue to spend money on the school after patching it up.
He said others in the room feel the same way, but that they would not stand up to say what he was saying.
Commissioner Andy Anderson said he shared some of the same concerns Best had expressed. Anderson said he had been on the board for almost 19 years and during that time had unsuccessfully tried to get the county to set aside money for future schools to spread out over time.
Anderson said that while he had reservations about the project that he would vote for it.
"I think Jack has a good point. We should have been doing this a long time ago," he said.
That prompted Bell to say that he must be missing the point.
"Explain it to me," he said. "Here we have the opportunity to save taxpayers money. It is our responsibility to build schools. You pay me now or you pay me later. I don't understand what the big fight is over."
There is no fight, Anderson said. The county should be building new schools not patching old ones, he said.
Best also questioned Parker if he correctly understood that the financial arrangement was not backed by the faith and credit of the county.
"That is correct," Parker said.
"But in the end if it is not paid in a timely basis do you think the banks are just going to take the schools as collateral?" Best said. "Then they are going to sell it. Who is going to pay the balance?"
There would be no deficiency judgment in that case against the county, Parker said. A deficiency judgment is a court order against a debtor indicating that an outstanding debt was not fully covered by the sale of mortgaged property, in this case the two schools, and places a lien on the debtor for more money.
"The agreement says that every year you are going to appropriate sufficient funds to pay it," Parker said. "But if you don't, (the bank) cannot get a deficiency judgment. If it is not the board's intention to (pay), then you don't want to approve it."
If commissioners five years from now decide not to appropriate the funds, then the bank couldn't come back on the county, Best asked.
"They can come back to the extent that they have two school facilities that they can try to go out and sell," Parker said.
That generated laughter from Best who said, "Yeah. Good luck."
BB&T will require a survey of the property and title insurance, which will protect the bank to a certain extent, Parker said.
"I understand that," Best said. "It is a heck of a document, but you are telling me in five or six years and the federal government decides not to pay us the interest back and this board decides not to pay because we are not getting our money back and it is costing us money and they decide not to pay the principal that the bank can take over the schools and not come back on the schools or county commissioners?"
"That is correct," Parker said. "Under the state law you have a responsibility to provide schools to the board of education. If they ask you for something and you don't give it to them, they can carry you to court and see whether a judge or jury wants you to do it."
"Sooner or later we need to go to court," Best said.
"What I am saying if they don't have these two schools to operate and they want some more it is not like it is something that is going to be easy for the county not to pay," Parker said.