County Board minutes: Special finance meeting
August 17, 2012, By Pam Meagher, A Special Finance Meeting was held at the Logan County Courthouse on August 14, 2012
Present: Chuck Ruben; Dave Hepler; Bob Farmer; Jan Schumacher; Terry Carlton
Absent: Rick Aylesworth
Guests: Bob Jeckel; Dominic Dalpoas; Vic Martinek; Mary Kelley; Mark Hilliard; Sally Litterly; David Pistorius – First Midstate; Jonathan Wright
Mr. Ruben called the meeting to order at 12:03 pm.
Budget: Mr. Ruben reported the first draft of the budget is available and has been distributed to all committee members. This will be discussed at this evening’s regular Finance meeting. The questions asked by Andy Lascody have been addressed by Mr. Ruben, Mrs. Dugan and Mrs. Meagher.
Bonded indebtedness: Mr. Pistorius, on behalf of First Midstate, was invited to present borrowing alternatives available to Logan County to generate revenue in order to meet the upcoming trial expenses anticipated in the County. Most of the recent bond issues they have handled have been in the 2.5-3% expense range. There would be no expense for their services if bonds are not actually sold. They would find buyers for bonds and provide payback schedules depending on the structure that is requested. Bonding capacity of the County was discussed. By statute, Logan County is limited to $24,738,000 million in general obligation bonds. This would have to be done by general referendum. Mr. Ruben indicated this would not be possible, given the current timeframe the County is working within. Alternate revenue bonds would be another option. These bonds do not have a tax levy to repay them. They must be paid back with pledged revenues the County currently has. This type of bond is a hybrid revenue/general obligation bond. The County would have to find a revenue stream to repay this. That would not include new property taxes, but could include: fines, fees, farm revenue, sales tax. Real estate taxes act as a backup for repayment of alternate revenue bonds. In that case, a tax levy would be possible, without referendum. That levy would not be subject to tax caps, as there is an exclusion in statute for alternate revenue bonds. A feasibility study must be done that shows the pledged revenues would be 125% of the bond amount, above and beyond usual expenses. If the revenue changes and is insufficient to pay the debt service, taxes would be levied to make up the difference. Mr. Pistorius indicated he has not personally seen that happen. Mr. Ruben reported last year’s audit showed a surplus of approximately $400,000. That number is what would be used for the feasibility study.
Issuance of alternate revenue bonds includes three steps. The first step is the issuance of an ordinance of intent. This states how much the County plans to borrow, what revenues the County is pledging for pay back, and states the possibility of taxes as a backup. This is then published in a paper of circulation with a 30 day petition period. If 7.5% of registered voters signed a petition, this would then be required to be placed on a ballot. If there is no petition, the project moves forward. This is typically referred to as a “back-door” referendum. The authority to issue the bonds is good for up to three years. The second step in the process is to conduct a public hearing. This is required for all non-referendum bonds. This requires publishing in a paper for 7 days. The final step is to adopt a bond ordinance. Bonds are not sold until a week to ten days before the bond ordinance meeting takes place. When bonds are issued to pay bills, the IRS typically does not allow those to be tax-exempt so those would be taxable bonds. Taxable bonds are usually about 1% higher than tax-exempt bonds. Alternate revenue bonds require an annual abatement ordinance to abate the tax each year.
Mr. Pistorius provided examples of possible issues and repayment schedules. For a $1.2 million bond issue with a 5.5% rate, the annual payback would be $150,000 annually for 10 years. Extending is to 20 years would be a $100,000 annual payback. For $1 million for 20 years, it would be approximately $85,000 annually. Mr. Ruben indicated he is researching whether the Monsanto and Viper Mine funds could be used in place of farm funding for economic development. That would provide $30,000, so the County would only have to come up with $55,000 annually. This would lessen the impact to the outside levies.
Mr. Hepler left the meeting at 8:39 pm.
The committee discussed the possibility of obtaining a blended rate. The only way that would be an option would be if there were any capital projects that needed completed. The only project would be the roof at the Safety Complex, but that project would not be a significant enough expense for this use.
Mr. Pistorius was asked if he would be available to present this information to the full Board. He would not be available until the Board of Whole meeting on September 13th. A motion was made by Mr. Carlton, seconded by Mrs. Schumacher, to bring the option of going out for bonds totaling $1,000,000 over a ten year period with First Midstate, to be brought forward and discussed at the September Board of Whole meeting. Motion passed.
Mrs. Schumacher questioned whether this contract with Midstate would require going out for competitive bid. Mr. Ruben didn’t believe that to be necessary, since this is for professional services. Mr. Wright indicated he would need to confirm this, but he does not believe going out for bid would be required.
Mr. Pistorius was asked for the timeframe, if this were to be approved by the full Board. He feels funds would be available by the end of December, if there were no delays in the process.
Mrs. Dugan asked if there were the possibility to sell bonds with a shorter callback period, since wind farm funds could be available to pay off the obligations. Mr. Pistorius indicated this is possible, but that would impact the rate of the bonds and would probably require a higher rate for buyers. The impact would not be clear until the County is actually selling the bonds and in the market.
A motion to adjourn was made by Mrs. Schumacher, seconded by Mr. Farmer. Motion passed. Meeting adjourned at 12:59 pm.