Skip to content Skip to left sidebar Skip to right sidebar Skip to footer

Budget Committee to review debt management policy for county

Members of the Washington County Budget Committee will review the finalized draft of a Debt Management Policy during their Dec. 14 meeting and hope to recommend it to the full commission next week.
All state and local governments and government entities that borrow money have been directed by the state comptroller of the treasury to submit a debt management policy by Jan. 1, 2012.
Mayor Dan Eldridge has held several public workshops to receive input from commissioners on putting together the policy, which is posted in draft form on the county’s website under Budget/Fiscal Information.
Commissioners Joe Grandy, Mitch Meredith and Pat Wolfe shared their opinions during a Dec. 7 workshop.
At Wolfe’s suggestion, a change was made to the guidelines for the issuance of variable rate bonds for long-term debt.
The draft stated, “The county will limit its exposure to long-term variable rate debt to the lesser of the following: 25 percent of the total principal amount of its outstanding long-term debt; or 90 percent of the county’s cash balance, excluding capital projects funds or accounts funded with bond proceeds or grants, measured as of the end of the fiscal year preceding the issuance of the variable rate debt.”
“I would feel better with 75 percent (rather than 90 percent), though I can’t imagine we would ever reach that limit,” Wolfe said.
“In this environment, I can’t either,” Eldridge agreed.
The policy also offers direction regarding principal payments of any new debt. According to the proposed debt management practices, “Each bond issue shall be structured so that either (a) 20 percent of such issue will be amortized by the end of the 10th year following the fiscal year in which the bonds were issued, or (b) following the issuance of such bonds, 40 percent of the principal of all outstanding county bonds will be amortized by the end of the 10th year following the fiscal year in which the bonds were issued.”
The 10-year payout of Washington County’s debt is lower than comparable counties, according to an analysis conducted by Morgan Keegan in November. While Washington County is only expected to pay off 28 percent of its net debt within the next 10 years, other Tennessee counties are scheduled to retire as much as 65 percent.
“The 28 percent amazed me,” Eldridge said. “This is not a good situation for us at all compared with other counties.”
The age of Washington County’s debt and the bonds that are receiving interest-only payments at this time are reasons for the slow pay off, according to Eldridge.
“One of the things that skews our numbers is we had no debt for years and then took on considerable debt for the justice center and the schools,” he said.
“All of the debt in Washington County was issued in the last 10 years. We need to understand we have limited capacity.”
Eldridge said the county will retire $45 million in principal during the next decade if no additional debt is incurred.
Wolfe cautioned against getting the county in a cash crunch trying to accelerate the pay down.
Commissioner Mitch Meredith said he would like to see a five-year debt budget tied in with capital improvements. “This is critical to getting away from knee-jerk reactions,” he said.
The proposed policy authorizes the mayor “to engage a financial advisor for a debt transaction, and from time to time to assist the county in evaluating current or foreseeable conditions or opportunities.”
The county legislative body would approve the terms and conditions before a written contract was signed, and the financial advisor would not be allowed to bid on or underwrite an issue for which he or she had been providing advisory services.
“With so many unknowns looming over the next six months, or six years, I would be in favor of retaining an advisor now,” Wolfe said.
Grandy agreed it would be helpful for the advisor to become familiar with Washington County’s financial picture prior to considering any transaction.
Eldridge said he will have proposals for a financial advisor ready for the Budget Committee to review at the first of the year.