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INDEPENDENCE — Grayson supervisors will explore their financial options as the county looks to make up a potential $2.7 million deficit at the end of the current budget year.
Corbin Stone of Robinson, Farmer, Cox Associates — the accounting firm compiling a financial forecast for Grayson County — and Dan Siegel of law firm Sands, Anderson, Marks & Miller were on hand April 13 to discuss a few options supervisors need to consider.
Stone explained that the county is facing significant financial barriers, with an estimated negative cash flow of more than $652,000 as of March 31 and an additional deficit of more than $2 million projected between now and the end of the fiscal year on June 30.
Stone further explained that, while running a negative cash flow, the county has essentially been borrowing from other previously allocated funds to keep money in the general fund.
Eventually, however, all those other budgets will be expended, leaving the county with a large deficit.
Assuming a change in tax collection to once a year, with taxes being due Dec. 5, Stone noted that the deficit could grow to $5.5 million by the end of November.
Stone approached the board and explained two motions he needed.
The first was to seek a tax anticipation note — a line of credit — of up to $4 million. The second was to renegotiate the school funding loan up to $18.3 million and restructure the due dates.
Because the original $16.3 million was funded based on temporary funding only, the balance is coming due next fall, Stone explained.
The county's plan to use state Literary Loan funds to obtain permanent financing is no longer available, and may not be back on the table until at least 2013. This means the county must negotiate with SunTrust bank to restructure the loan's due date and extend the temporary financing until Literary Loan money can be obtained.
Although the original amount borrowed for Phase I of the school’s facility update plan was $16.3 million, the projected costs for Grayson Highlands School and renovations to Fries Middle School have grown to $17.3 million.
The county could ask for an additional $1 million in financing to cover the money it has used to make interest-only payments on the $16.3 million loan.
While the original plan was to put the $16.3 million in a savings account and earn enough interest to cover the interest-only payments, interest rates tanked as the country entered a recession. The county went to Plan B — using loan money to make payments.
This left the county roughly $1 million short in terms of actual cash available for the project.
Although supervisors later granted Stone and Siegel authority to begin negotiations with SunTrust, that doesn’t mean the board will allow the school board to spend more than $16.3 million. Stone and Siegel will begin talks with SunTrust and bring recommendations to the board at a later meeting.
If the project comes in above $17.3 million, Stone said the county will likely tell SunTrust that additional money may be needed.
Supervisors were reluctant at first, but Stone told them that time was of the essence, with construction scheduled to finish this summer.
County Administrator Jonathon Sweet further explained that approving the renegotiation — and, perhaps, eventually signing documents — did not bind the board to approve additional spending for the school system. But, renegotiating would make the money available quickly if it was needed.
Supervisors unanimously approved allowing Stone and Siegel to begin renegotiation talks with SunTrust. They expect to have documents to consider in five or six weeks.
The key factor in determining if the county will be eligible for renegotiated terms and/or an increase in the line of credit will be what tax levy supervisors set, Stone explained. In other words, the banks want to know that the county will be able to pay that money back.
“SunTrust is probably going to want to see the [financial] forecast before they take it for credit approval,” Stone said of the document he is creating for the county. The tool will allow supervisors to plug in budget expenditures and revenues and see where the tax levy needs to be set to balance the budget.
That number, Stone continued, will be critical in determining if the county receives additional time and money. “I could see a bid or approval being contingent on a certain tax rate.”
On the tax anticipated note, Stone said that by running a deficit as of March 31, the county needs to supplement its budget with additional funds. “We’re going to run out of money.”
Along with approval for renegotiated terms, Stone and Siegel explained that banks will want to see the tax rate before they approve a $4 million credit line.
Sweet said banks want to know that the county can pay back that note with tax revenue generated.
With no further comments, supervisors unanimously approved requesting proposals for a $4 million line of credit.