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INDEPENDENCE — There's a storm on the horizon for Grayson County in terms of its financial stability, according to preliminary information from a financial forecast.
Corbin Stone, of the firm Robinson-Farmer-Cox, was on hand during the Grayson supervisors' meeting last Thursday night to provide the board with a few updates as he works on the county's financial forecast.
Stone explained that the idea is to look at the county's financial history and begin to project into future years what revenues and expenses the county will likely face.
"I've spent the last several days getting to know Grayson County in a financial sense," he told supervisors. "I've looked at where you've been and where you're going."
To begin, Stone said that Grayson averages an annual increase of about 2 percent on the revenue side of its budget. "I wouldn't say that's strong by any stretch.”
On the expenditure side, the county averages roughly 3 percent growth, which Stone said was good and shows the county is holding expenditures tight.
"We don't see a fluctuation... so that's good," he said. "You just don't have the growth of revenue, and over time that builds up."
Grayson is building a new school in the western end of the county and is performing renovations and building additions to Fries Middle School.
Stone took some time to show supervisors how and when these debt services would begin to really hit the budget hard.
In 2004, the county had more than $2.4 million in outstanding debt and/or long-term obligations. In 2008, that number had grown to $18.3 million — which essentially is the loan taken out for the school improvement projects.
In 2004 Grayson spent $439,172 in debt repayment. In 2008, the county paid $614,826 — but only $347,909 actually came out of the general fund because loan money was used for the interest-only payments on the school construction loan.
Stone said it was common in local governments to use borrowed money to pay on loans.
The bad news for the county is that, while original plans were to obtain literary loans to secure permanent financing for the school construction projects, that state program has been put on hold temporarily.
Stone said the county will now be required to either renegotiate with its current lender for additional time or be forced to obtain permanent financing elsewhere.
"You really want to wait for literary loans," Stone told the supervisors. "That's a 2 percent interest rate. If you go into the market it's 4 or 5 percent." That would be a difference of nearly $300,000 on interest payments.
For his preliminary numbers, Stone assumed that literary loans could be available in 2013 and showed the board that by 2013, the county would be required to pay $1.3 million out of the general fund in debt service.
The Perfect Storm
In terms of the current projects underway, Stone estimated that the county may be required to fund an additional $1.7 million to finish them because money was borrowed from the actual loan to pay the interest-only payments.
With revenues only increasing by 2 percent and expenditures increasing by 3 percent, Stone noted the county would also have to somehow deal with that gap.
"Those are really the challenges that you're facing," he said. "It's almost like a perfect storm: We lose literary funds. The economy is not strong. Finishing up two construction projects, and not a big reserve in place... It's going to all come together within the next 12 to 16 months — if not sooner."
Stone said his financial forecast will look out over the next five years and will give the supervisors a target of what they want their fund balance to be.
Once that is set, all the known numbers will be plugged in — capital projects, operating costs, debt services and so forth.
"At the end of the forecast, a tax rate will automatically be calculated," Stone explained of what would be needed to meet the county's forecasted goals. "Then [the board] can go back and adjust numbers and see what impact it has on tax rate."
As the county looks at cutting funding and/or programs, Stone said they could see the effect over the budget for the next five years.
"It lays it all out for you," he said. "All of your revenues and expenditures."
Looking back at Grayson's history, Stone said one thing that could have really helped the county was if it had kept its real estate tax higher after a sharp increase in assessed values.
In 2000, the county had a tax rate of $0.71 per $100 of assessed value, while it now has a rate of $0.34.
Stone said most counties used the increase in assessed values to collect more money, while Grayson took the tax rate down and didn't take advantage of increasing real estate taxes.
"In a lot of ways, that's a good thing," he said. "Taxes have remained low for your citizens."
In fact, Grayson currently holds the lowest tax rate in the state.
Once Stone completed his presentation, he opened the floor for supervisors and county officials to ask questions.
County Administrator Jonathan Sweet asked what impact using borrowed money to pay interest-only payments would have on the overall permanent financing.
Stone explained that, because the county used loan money and even though all the loan was needed to pay for the project, the county will be required to finance above the $16.3 when it obtains permanent financing.
While the county had hoped placing the money in a savings account would draw enough interest to pay the interest payments on the loan, rates dropped significantly on the savings accounts and enough money was not earned.
When asked to further explain, Stone said that when the county borrowed $16.3 million, only $15 million was available for construction because the county was using a portion of that loan money to make the interest-only payments.
Through 2009, the county had paid $866,000 in interest to date.
Chairman Larry Bartlett then asked if it would have helped the county if the new school had been completed on time and permanent financing had been obtained.
Stone said it would have been beneficial to have been locked into a 2 percent literary loan now. But with that money off the table for the foreseeable future, it's just not an option right now.
"Could we have accomplished [obtaining literary funds] in August?" Bartlett questioned.
Stone said he believed the loan program had already been put on hold at that time.
Sweet then asked if the county could reduce some of those consequences by making principal payments on the loan instead of just interest until permanent financing is available.
Stone said it would be beneficial for the county to begin doing that.
"I would recommend you go ahead and start paying those loans down," he said.
Sweet said he and the county staff continue to work hard to determine what type of interim loan may be available for the time being.
"Regardless of those options, they are all well beyond what we had initially calculated and expected," Sweet said.
Whether it be additional financing and/or general fund dollars, the county is looking at a potential $1.7 million differential than what was anticipated.
Stone said the county will likely need to issue a tax revenue anticipation note this spring to cover the costs for the time being.
When asked what estimated amount the county may need to secure, Stone said it was going to be more than the $3 million the county has outstanding right now.
"What would you consider our financial health to be?" Sweet asked.
"It's going to be tough," Stone said. "It's going to be a challenge."