Archived Story

‘Cushion’ available for HC projects

Published 9:17am Tuesday, January 8, 2013

WINTON – Hertford County officials are moving forward with a plan to use the public bond market as the means to finance two capital improvement projects.

Following a public hearing that dealt with the execution and delivery of an installment financing contract with a third party, Hertford County Manager Loria Williams said the next step in a $12.225 million project to build a Judicial Center and Government Center will be to submit a final application for this plan to the Local Government Commission (LGC) for their approval when they meet on Feb. 5. By Feb. 6, the county hopes to have bond pricing and will lock in an interest rate, leading up to the scheduled closing of the financing package on Feb. 14.

“We’re right on schedule (with this plan),” said Ted Cole of Davenport & Company, who is serving as the county’s financial advisor on this project, during his brief comments made Monday morning at the scheduled meeting of the Hertford County Board of Commissioners.

The only glaring portion of the financing plan was that the third party could provide the county with up to $14.25 million for the project. That amount represents just a shade over $2 million more than what the project is expected to cost.

“They (Davenport & Company) told us last month to expect to see a number significantly higher than what we have in our capital improvement ordinance to build the new courthouse and administrative office building,” said Williams on Monday afternoon. “They needed some cushion just in case there is a major shift in the public bond market, especially in interest rates.

“Again, the $14.25 million number is a worst case scenario,” Williams continued. “That cushion is in place just in case something crazy happens with interest rates. Right now we’re expecting a three to three and one-half percent (interest rate) on the money we need to build these facilities. If something goes crazy between now and the time we lock in our rate in early February, say the interest rate doubles to six or seven percent, this extra $2 million will cover that and we will not have to jump through all these hoops again. But I need to stress that we’re not expecting those interest rates to go any higher than three and one-half percent, especially now with the fiscal cliff issue seemingly settled.”

It was at the commissioners’ Dec. 17 meeting where the board was first introduced to the idea of using the public bond market to finance the projects, both of which will be constructed at the Riversedge development along US 158 just west of Winton.

Cole said the public bond market will allow the county to tap into a broad range of investors who are interested in purchasing municipal tax-exempt bonds.

“It’s a very large market,” he said at the Dec. 17 meeting. “It’s very frequently used for local government projects such as yours. It provides very competitive fixed (interest) rates. Those rates are now at their lowest (3.27%).”

If there is a downside to seeking funding through public bonds it comes to more “moving parts” involved in the process – a bond rating, bond counsel, financial advisor, an underwriter and a counsel for the underwriter. Filling those roles will cost the county $315,000.

“There are some additional costs you will incur with this particular funding process than you would within traditional bank financing, but at the end of the day you will come out ahead with the rate and the annual payments,” Cole said. “We’ve done this enough to know that these public markets can give you the lowest annual rates.”

Cole explained that the bond trustee will hold the dollars for construction and the county will requisition those funds out and pay the bills.

Cole said thanks to the county’s foresight to begin putting money aside for this project years ago, paying that debt service without impacting the current tax rate should be realized.

Payments on that debt service begins in 2014. For the first six years (through 2019), those payments are estimated at between $963,431 and $1,105,036 due to the fact that the debt service on the new construction projects is combined with existing General Obligation Bonds (roughly $140,000 annually) that are still being made on a loan used to make upgrades to Roanoke-Chowan Community College. Repayment on those G.O. Bonds ends in 2019, thus dropping the total debt service payments only to the new Judicial/Government Centers (payments beginning at $941,831 in 2020 and ending in 2033 at $620,250).

Williams had previously developed a plan of how to generate the necessary revenue to match those debt service payments – $490,000 annually that county officials promised to use annually for capital improvement projects when local citizens voted to approve a local quarter-cent sales tax; an additional $100,000 in sales tax that the commissioners earlier approved to be set aside to make these debt service payments; $100,000 that the county will save in leases they currently pay to house offices that will be moved into the new Judicial Center; the $140,000 currently used annually to pay back the RCCC bonds (by keeping that amount in their annual budget); and a yearly incentive payment reduction of $205,000 beginning in 2018.

“There is not an additional impact associated with this project beyond the sources of revenue already identified,” Cole stressed. “You have the dollars to make these debt service payments in full. You are in very good shape with this financing and repayment plan. You have a solid plan. In fact, you’re a little bit to the good; you have a little bit of cushion.”

At their Dec. 4 meeting, the commissioners awarded the construction contract for the two facilities to A.R. Chesson Company of Williamston. The construction is priced at $9,983,476. The remaining costs are furnishings and equipment ($666,738), design fees and expenses ($850,306), land and right-of-way ($70,000), materials/testing/special inspections ($155,744) and contingency ($499,174).

The Judicial Center (courthouse) will be a three story facility encompassing 45,456 gross square feet. The Center will house all departments in the existing courthouse plus the District Attorney’s Office and Child Enforcement Office, both currently in Ahoskie.

Additionally, the project includes a single story Government Center (10,385 gross square feet) that will be built adjacent, but not connected, to the courthouse. That facility will house the county manager’s office, tax collection office, tax assessment office, land records, finance office and economic development (planning and zoning) office. In turn, that space in the current administration building in Winton will be used by Hertford County DSS.

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