GATESVILLE – Banking on a recent financial trend that has caused Gates County’s local government fund balance to show steady gains, the county’s elected leaders have opted to invest a portion of that money in an effort to reap interest savings on long-term debt.

In a unanimous vote, the Gates County Board of Commissioners approved a measure that will use $100,000 of available fund balance to make a one-time incremental payment towards a $1.7 million loan approved this summer that paid off an existing 30-year loan with USDA borrowed to construct the Department of Social Services building.

The vote came on the heels of a presentation by Commissioner John Hora, who has over the past several months has urged his board colleagues to look at more ways to save on that loan, including one-time incremental annual payments of $50,000 to as high as $100,000.

It was at their Aug. 1 meeting where the commissioners signed-off on two resolutions, paving the way for the county to borrow approximately $1.7 million to payoff an existing USDA loan. With that loan in hand, the county increased their annual payments by roughly $38,000, but will pay the money back over a much shorter period of time, thus saving $600,000.

Hora’s presentation last week highlighted the steady growth of the county’s total fund balance since 2010. Those audited numbers reflected $2.98 million in that fund in 2010; $3.4 million in 2011 and $3.58 million as of June 30 of this year.

As far as available fund balance from the county’s General Fund, Hora’s calculations showed $2.94 million as of June 30, up from $2.67 million at the same time in 2011. He further reported that from 2009 (where available fund balance was at $2.33 million) until June 30, 2012, the fund had increased by $607,998.

“What’s so important about that figure is that we generate more than half (56 percent) of our overall revenues from ad valorem taxes,” Hora said.

He pointed out an increase between the 2011 and 2012 in property tax receipts – respectively coming in at $6.028 million and $6.037 million.

“You can see the impact property tax has on our revenue stream,” he stressed.

Hora’s presentation included information of revenue vs. expenditures. In 2011, revenues exceeded expenditures by nearly $400,000. The same trend held true for the budget year ending June 30 of this year where revenues came in $340,000 higher.

“That gives us positive fund balance,” Hora said, adding that the General Fund balance sheet, from 2007-2012, has increased by $1.47 million. “That’s a good thing.”

He said there’s another $438,465 worth of property taxes that will go directly to the General Fund balance in a future year because of current accounting methods.

“That money is earned, it’s owned to the county, but not received as revenue in time for the current year and is shown as a liability on the balance sheet,” Hora explained.

His presentation was designed to show that the county’s coffers were strong enough to make more of an impact on long-term debt.

“Even the new DSS loan for 15 years at an interest rate of 2.89 percent will cost us $421,408 in interest,” Hora said. “We can pay an extra $50,000 a year and save $24,507 – a 49 percent return on our money. At (an extra payment of) $100,000, we save $48,818 in interest which is a 48.8 percent return on our money.”

Hora stressed that if the board would agree to make an incremental payment of $100,000 this year and then follow that up with eight more at $50,000 annually (spending a total of $500,000 stretched over nine years), the county would save $140,613 in interest as well as reducing the term of the current loan from 15 years to 10.5 years.

“We all know that the most interest is paid on the front end (early years) of a long-term loan,” Hora stated. “We can look at this year-to-year. If we can’t do $50,000 next year, we need to do what we can to get the most impact from the interest savings. Every day we wait to do this costs us $135.35 in interest.”

Referencing the strength of the fund balance, Hora said even taking away the $704,064 already earmarked from that financial savings account for known obligations during the current fiscal year, the county can afford to make incremental payments to help reduce long-term debt as well as realize significant savings in interest. He projects the fund balance will fall to $2.52 million by next year, but those numbers, adding in the excess property tax receipts not accounted for each year, will rebound nicely – up to $2.71 million by 2014; $3.18 million by 2015 and $3.53 million by 2016.

Following Hora’s presentation, the commissioners engaged in a discussion over his proposal.

“We have to be mindful that we haven’t had any type of major disaster in a number of years where the county has to use fund balance for emergency situations,” said Commission Chairman Henry Jordan. “Even with that I’m comfortable with the last projection that our finance officer provided us on our fund balance. I’m comfortable that this year we designate $100,000 to our debt service on the DSS loan and realize some of those savings.”

“I’ve indicated in the past that I’m willing to pay down debt,” Commission Vice Chairman Jack Owens stated. “I’m aware of the items in play (the $704,000 already obligated from the current fund balance), but I want to see us save this interest. I want to see us do it now and then revisit this in say March or April of next year when we’re preparing our new budget to see what our considerations are at that time to factor into the budget. Today, I agree with the $100,000 (incremental payment).”

“This is a risk if we look down the road at what might happen in an emergency situation,” Hora noted. “If things tend to trend like they have for the past five years and we continue to closely monitor our expenditures, there’s absolutely no way this positive trend will end. It would take an extraordinary event for us to have a problem.”

“Mr. Hora made a motion a while back to do this, to make an extra $100,000 payment to our long-term debt and I seconded that motion (which was defeated in a deadlocked 2-2 vote with Owens absent from that particular meeting),” Commissioner Kenneth Jernigan recalled. “I’m still for that. It saves us money, not overnight but over a period of years. I feel we’re in good shape; we’ve improved over the past five years and put money into our fund balance. We can afford this.”

Even though last week’s meeting was a first for Linda Hofler as the board’s “rookie” commissioner, she has attended previous sessions where this issue was discussed.

“I’m all for saving money,” she said. “I can support this.”

Hora made the motion to spend $100,000 from fund balance this year as an incremental payment towards the DSS loan and to do so ASAP if allowed by the terms of the loan. Owens offered a second and the motion passed without objection.