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INDEPENDENCE — The month of October was a tough one financially for Grayson County, after county leaders were forced to borrow $1.6 million to pay the bills.
Now, the board of supervisors is considering the idea of establishing a line of credit with a local bank to cover any shortfall in the future.
During last month's meeting, supervisors asked County Administrator Bill Ring to request proposals for a line of credit and return to the December meeting with his findings. Ring returned this month with two options — SunTrust and Carter Bank.
“The purpose of this update is to determine which is the better of the two deals,” Ring said during the supervisors' meeting Dec. 11.
Based on a $2 million line of credit, SunTrust offered the county a variable interest rate of 2.14 percent, with a $1,000 bank fee and an unused portion fee.
Based on a draw of $500,000, it would cost the county $2,047.91 for 30 days. If the county needed $1 million, that amount would rise to $2,887.49 with SunTrust.
On the other hand, Carter Bank offered the county a fixed interest rate of 2.5 percent, with no bank or unused portion fees. The county would pay $1,041.66 for 30 days if it borrowed $500,000 from Carter and $2,083 if it borrowed $1 million.
Ring noted the nearly $1,000 savings on half a million dollars and $800 savings on $1 million with Carter.
Although SunTrust is offering a lower interest rate, Ring said that could always change.
“It would be my recommendation, if we go forward, to do so with Carter Bank,” Ring told supervisors.
In comparison to the loan supervisors obtained in October, the interest rate was 4 percent and cost the county roughly $2,300.
Supervisor Larry Bartlett wondered, if the numbers were similar, why was the line of credit any better.
Supervisors' Chairman Mike Maynard said two things led to him to pursue the line of credit.
The first was the amount of time it took to execute the loan.
Ring noted that it took almost the entire month of October to finalize the paperwork and obtain the funds.
Maynard said the second reason for the consideration was the fact that the county was looking to borrow money in the midst of the national credit crisis.
“Many people couldn't borrow money then,” he said. “If we ever had the circumstances again... we can access this immediately.”
Maynard added that the biggest concern about the line of credit was the up front cost, which SunTrust originally said would be $10,000. After the county began looking at other options, that number dropped to $1,000.
Bartlett was pleased with what the county administrator's office had negotiated, but still has a few worries about the establishment of the line of credit.
“I'm worried that this [credit line] being there is tempting to use,” he said. “With a loan... it's not that easy.”
Bartlett said that, for both the current board and future boards, he was worried of the temptation to budget around the use of the credit line.
Maynard replied that having the line of credit would require self-discipline from the board and that funds would only be used in the event of emergency situations, such as the one in October.
Bartlett said over the past three years he has seen the abuse of a line of credit in another organization and, “it's been difficult to recover.”
Supervisor Doug Carrico questioned if there was a fee if the money was never used.
“None at all,” Ring said. “The contract is renewed annually... we have no urgency to move forward, the information given would be the same in 30 days.”
Maynard felt that the board needed to make a final decision sooner rather than later to lock in the low interest rate offered by Carter Bank.
Bartlett questioned if there was any penalty or other offer to pay interest only on the money drawn down.
Ring said he didn't see anything that would allow that, noting that the paperwork said the interest and total borrowed was due on the maturity date — one year after funds were received.
Bartlett wondered if there was a provision to allow the continuation of the line of credit, to which Ring said it would be re-negotiated on yearly basis, to his understanding.
Maynard added that each year, the bank would have the right to change any of the terms, to which the supervisors would have the right to either renew or discontinue the credit.
Supervisor Chris Morton questioned who would sign off on borrowing the money.
Ring said it would be his recommendation to require the entire board to hold a meeting to draw any money from the bank.
Maynard asked the board if they wished to take action — and offered another suggestion.
He said there should be a set of actual documents somewhere with all the “fine print” that really needed to be reviewed prior to any signing. He suggested the board allow Ring to pursue the offer through Carter Bank with all the paperwork being presented at the January meeting before the board voted on anything.
Morton noted that rates could change in January, because the current figures provided by Carter Bank were only good through Dec. 31.
Ring said he would talk with the bank and see if they would extend those terms beyond the January meeting for the board's consideration.
With that, Bartlett motioned to postpone a decision until the January meeting and allow Ring to pursue the line through Carter Bank and bring paperwork to the next meeting for review. Carrico seconded the motion and it passed unanimously.
In other business, the board:
• adopted a resolution in support of the closure of Route 753 in the county in order for the Virginia Department of Transportation to replace an aging bridge. The closure will be from March-August 2009.
• signed the paperwork regarding Ring's deferred retirement plan. Ring will officially retire Jan. 31 and take the month of February off before returning in March to work out his final required months of service. He is expected to work through the end of May to help get through the county's budget season.
• paid monthly bills totaling $236,874.17.