In hockey, a hat trick is when a player scores three goals in a single game.
In Aiken County, it’s when three major projects – any one of which would break a typical county – are financed in rapid succession without hiking taxes or busting the debt limit. These three financially challenging projects are the Bridgestone expansion, the new administrative complex and the ice storm cleanup.
At issue isn’t the wisdom of these projects – the new complex in particular generated plenty of debate – but the fact that Council could tackle them at all. Coming on the heels of the great recession makes it even more remarkable.
The first of these projects is the Bridgestone expansion toward which the county contributed $11 million: $10.4 million to purchase 545 acres of land, $500,000 for a connector road between Vaucluse Road and the plant, and $100,000 for permit review fees.
How did Council swing it? The county sold the Mattie C. Hall Health Care Center for over $12 million in 2005. The proceeds resided in a fund requiring a super-majority to touch. Despite temptations to loot it during the recession for current expenses, Council left this fund alone until it was tapped for the Bridgestone project.
Ultimately, under the agreement with Bridgestone, the county will receive $18 million in tax revenues from the expansion through 2041. Using net present value, the county breaks even on the $11 million at a 5 percent interest rate – a decent return by today’s standards.
The second project is the new administrative complex. The final all-in cost is $40.5 million including preliminary studies, land, design, construction and furniture, fixtures and equipment.
How was this financed? First, the county used $12 million in 1-cent sales tax money dedicated to this project. Second, in 2012 the county floated $28.5 million in 30-year general obligation bonds.
Several factors facilitated this choice. Due to delays in starting the project, a portion of the county’s existing debt was liquidated prior to issuing this new debt. Interest rates dropped to historic lows. De-scoping 15,000 square feet reduced the total project cost. Combined, these factors kept the county’s annual debt service costs fairly constant without any spike in the millage rate.
Since the building has internal room for growth, the bonds will be paid off long before its 50- to 100-year lifespan is past, or before any expansion is necessary. (Compare this to federal indebtedness that will never be paid off.)
One concern with issuing the bonds is that it reduced the margin between the county’s outstanding debt and its statutory debt limit. What if another major need arises and there’s no ability to borrow?
As outstanding debt is whittled away and the debt limit slowly rises, this legitimate concern steadily diminishes. By mid-2013, the debt limit was $50 million against $36 million in bonds outstanding. The $14 million debt margin will continue to grow if Council budgets conservatively going forward.
The third financial challenge arrived unexpectedly: Winter Storm Pax. The cleanup is estimated at $14.5 million. Approximately 80 percent of the costs, or around $11.5 million, will be reimbursed from FEMA, so the county will be out a net $3 million. (Even this amount would challenge most counties.)
But FEMA reimbursements take time. How will today’s expenses for vendors and subcontractors be covered?
County revenues receive a bump once a year from property tax revenues, and a cash balance is built up. Expenses, however, are fairly linear across the 12 months of the year. Therefore, cash must be carefully managed to ensure there’s enough on hand to cover costs until the next property tax infusion.
In the 1990s, the county fell behind the curve and tax anticipation notes were issued to make ends meet until the property tax revenues materialized. Since then, year by year, slowly and imperceptibly, Council dug itself out of this hole.
Short term borrowing is no longer needed for current expenses, and Council established a rainy day fund. Chairman Ronnie Young and his colleagues deserve credit for this recovery.
Therefore, in lieu of borrowing, the county will cover the clean-up costs by dipping into its $17 million in unrestricted reserves. If FEMA reimbursements arrive this fall, the county will pass this third financial test.
The nest egg was there when it was needed.
This display of financial strength, however, shouldn’t signal more spending or new initiatives. Council must focus instead on reducing debt and replenishing reserves in the event another challenge emerges. Economy is needed now more than ever.
Gary Bunker is a former Aiken County Councilman.