By Leslee Kulba- Only one person spoke at the public hearing the Buncombe County Commissioners were required to hold before their February 20 vote to float $60,416,308 in limited obligation bonds. And why should anyone? County CFO Tim Flora explained that, like so many other county decisions, the matter had already been decided, and it was the purview of a higher authority besides.
The commissioners had adopted ordinances for school improvements totaling $44,161,525 in October 2016, $28,009,899 in March 2017, and $1,225,000 in January this year. Projects included $25,266,250 in major renovations for Asheville High School, $12,300,000 for Community High School, and $5,998,000 for the Montford North Star Academy. Other projects included roofing improvements, LED retrofits, paving, canopies, walkways, and ADA betterments. Flora said to date the commissioners had built the projects pay-go, and now cashflow is stretched so much, it was, “time to go out to the markets.”
The county’s financial advisor through the process, senior vice president of public finance for Davenport & Company Ty Wellford, said the county would be floating limited obligation bonds under its 2015 deed of trust; it only had to add more collateral. Since the collateral had to be a building benefitting from the bond money, the Montford North Star Academy and Asheville High School were put up.
Wellford said the county had two options for paying for the improvements: a public offering or a bank loan. He said there was only a “small universe” of banks that would consider loaning $50-$60 million. Banks typically don’t accept more than one project as collateral, either. The county wanted a 20-year, fixed-rate loan; and the few banks willing to offer that did not extend as good of terms as the bonds offered. With the best bank rates, the county would end up paying $2.8-$5.6 million more over the life of the loan. He added the county’s 2016 upgrade to an Aaa bond rating from Moody’s will likely save it $570,000-$1.3 million.
Wellford said the first step of any bond issue was getting approval from the Local Government Commission. An application had been submitted earlier this month, and the county received permission to move forward. The LGC is expected to approve the financing plan at a meeting March 6, and the bonds would be issued later that month. While actuals are dependent on rates for the day the county closes on the deal, Wellford expected the county would get a premium based on the county’s good credit and estimated annual debt service would run around $2,725,000-$2,730,000.
Commissioner Mike Fryar clarified the funds that would be used for debt service come out of sales taxes and “do not cut into property taxes.” The funds are not part of the general fund; they are dedicated, and they cannot be used for anything but school capital improvements. It is the School Capital Fund Commission that decides what should be funded, subject to approval of the county commissioners.
The SCFC was created through local legislation in 2016 amending 1983 legislation that created the fund. The fund was created by legislative intervention after Buncombe County Schools made the “Dirty Dozen” in a national rating. Since then, a portion of sales taxes, referred to as Article 39, are earmarked for capital improvements to Buncombe County schools. No other school district in the state has a SCFC and this kind of earmark.
To date, the SCFC has overseen $279,654,887 in projects; and the meeting’s consent agenda told how revenues of $65,675,616 were applied to the construction of Enka Intermediate School and the new Asheville Middle School with $233,441 in savings to be rolled over to future projects.
The only person to speak during public comment was Jerry Rice. He said the county was using the Article 39 tax “to the hilt,” having built “40-50 buildings that look like mansions.” He said the county had been building fancy schools for 20 years, and education is still suffering. He asked what would happen if the economy were to get worse and sales taxes dropped.
Following up, Commissioner Ellen Frost asked how the recession had affected the fund in 2009. Flora recalled sales taxes were impacted, but not drastically. He said it would be difficult to use conditions in 2009 for projections because, although the fund was established back then, it was operated by the schools instead of the SCFC.
Flora assured the bond amounts would be available and in reserves. If Article 39 revenues were to run low, that would only affect a future slate of capital projects. He added the SCFC would be modeling recessionary conditions at their meeting the next Monday, and County Manager Mandy Stone said the subject would be addressed at the commissioners’ work session the following day. Flora estimated the SCF collects $18-$19 million a year in revenue and retains $15-$20 million in reserves.