Debt service discussed

Published 10:14 am Thursday, June 21, 2012

WINTON – With a decision in hand to invest $11.71 million of taxpayers’ money into two new county buildings, Hertford County citizens need to know how this affects their pocketbook.

As part of Monday night’s discussion leading up to a favorable vote to proceed with building a new courthouse and administrative office, the Hertford County Board of Commissioners stressed the need to learn more about the annual debt service payment on these twin facilities. The following is a breakdown and discussion on both measures.


Debt Service – Option One (lease-purchase finance arrangement with a bank at an estimated 4.25% interest rate for 20 years): $9,929,377

This proposed debt, for a courthouse only, begins in 2015 with a payment of $932,404, an amount that decreases annually by roughly $22,000 through 2034 where a final payment of $525,422 will be due.

“These are estimated debt service payments; we can all hope that the bidding process will be a competitive one and the construction costs comes in under what is now projected,” said Hertford County Manager Loria Williams.

To help offset the annual debt service payment, Williams said she projects $615,000 of that amount can be generated yearly based on three streams of revenue – $450,000 of the county’s quarter-cent sales tax (an amount that has been and will continue to be set aside for capital improvement projects); $100,000 that she is recommending be saved annually, from the county’s share of the state’s one-cent sales tax, for the same purpose; and $65,000 in annual leases the county currently pays for the Child Support Office and District Attorney’s office, both of which will be moved to the new courthouse.

That leaves roughly $317,404 of a debt service payment to make in 2015 (again, that shortfall declines annually by $22,000). If that shortfall was covered by the money generated, at today’s values, from ad valorum taxes, Williams said that equates to approximately 2.3 cents on the tax rate.

However, even with her conservative figures, Williams said the county can build a reserve of $2.1 million, through the annual $450,000 in quarter-cent sales tax and the $100,000 she is proposing to earmark yearly to the capital fund, by the time the first debt service payment is due on the courthouse in 2015. By adding $615,000 annually, to include the $65,000 in lease payments that will disappear once the new facility opens, to that fund, the county can cover the yearly payments through 2020 without a shortfall.

“On top of that, by year five of our debt service payments on the new courthouse we will have retired general obligation debt we took out for the community college (the final payment of $131,750 is due in 2019),” Williams noted. “That will free up some additional revenue in ensuing years. I’m also hoping by that time that sales tax has recovered; it’s showing signs of recovery this year.”


Debt Service – Option Two (lease-purchase finance arrangement with a bank at an estimated 4.25% interest rate for 20 years): $11,716,583

Williams said with those annual debt service payments, on the courthouse and an administrative building, starting at a shade over $1 million, the reserve fund mentioned above would only last for three years.

“Again, this is a worst case scenario outlook,” Williams stressed, mentioning that the reserve fund did not take into consideration any tax money generated by possible economic growth. “What I am figuring for possible future economic growth is for operational costs for the new courthouse, which will be higher based on a lot more square footage than our existing courthouse.”

She said that the issue of moving the county’s government center (administrative building) out to the courthouse site would eliminate an inconvenience to the citizens and benefit the working relationships between administrative and judicial staff.

“This also benefits DSS by allowing them to move some of their provisions into the free space within our current administrative building,” Williams said.

While the overall cost is more, Williams said choosing option two would be better in the long run. She said building an administrative building later would add significant costs, “the design alone would be three times more than it is now,” Williams stated.

Noting that the accumulated funds will pay for option two through 2018, Commission Chairman Curtis Freeman observed that beyond that time there wasn’t an automatic need to raise taxes to meet the annual debt service payments.

“There may be (economic) growth by then; sales tax revenue may be back to the levels we were experiencing prior to the national recession; I don’t have a crystal ball to forecast that, but the possibility is there to generate county funds without having to raise taxes,” Williams said. “You can also choose to reduce spending in other areas (to cover the courthouse payments).”

In a 4-1 vote, the commissioners chose option two (see related story, page 1A).


About Cal Bryant

Cal Bryant, a 40-year veteran of the newspaper industry, serves as the Editor at Roanoke-Chowan Publications, publishers of the Roanoke-Chowan News-Herald, Gates County Index, and Front Porch Living magazine.

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