New schools and large buildings cost a lot of money. The county has been paying off some long-term federal loans for years and is now eyeing a refinancing that would help ease that annual debt burden.
County officials are hoping to save at least $4.5 million by refinancing U.S. Department of Agriculture loans that helped build several local schools, the Sampson County Law Enforcement Center and the Cooperative Extension and Animal Shelter buildings, as well as loans that renovated other facilities.
As part of the county’s ongoing goal to reduce expenditures, administrative staff contacted the underwriter that assisted the county with the 2015 refunding of the 2006 Certificates of Participation to gauge the possibility of refunding the county’s remaining USDA debt issues.
The intention, county officials said, is to get a 30-year term that will reduce the total repayment time and take advantage of favorable interest rates.
“This is hopefully going to be as good as what we’ve done with our previous refunding,” said finance officer David Clack. “With the board’s emphasis on cost reductions, we have been continually looking for ways to reduce budgets — of course one of our biggest expenses is debt service.”
There are 10 projects that were funded by USDA-Rural Development, he noted. As of June 30, 2016, each of those USDA installment agreements had between 17 and 35 payments remaining.
Those 10 projects include the construction of: Union, Midway and Clinton high schools, Roseboro Elementary; the Cooperative Extension and Animal Shelter buildings; the Law Enforcement and Detention Center
The remaining debt on Roseboro Elementary (about $12 million), the Law Enforcement and Detention Center (close to $10 million) and Clinton High School ($27.2 million) alone represent nearly $50 million of the close to $70 million in debt the county is refinancing.
Additionally, the refinancing targets USDA loans for renovation projects at Human Services and County Administration; a building converted into courthouse and office space; a county-owned building housing the Public Works and Data Processing departments; and s county-owned building that houses various other departments.
“This is all of the USDA installment purchase debt with the exception of the well project that was recently closed with very low interest rates,” said Clack.
The county saved a significant amount back in 2015, estimated at $6 million, when it refinanced certain long-term county debt, notably 2006 Certificates of Participation and the Water District II General Obligation Bonds. This refinancing will not cover those loans, which can only be refinanced every 10 years.
“It covers those loans that have not been refunded,” Clack noted.
He said the total amount of the debt to be refunded will not exceed $70 million. Sampson County’s USDA debt as of June 30, 2016 totaled $69,838,784.
“If this refunding is successful, the county will have refunded all of its long-term outstanding debt with the exception of debt to the state and some general obligation debt, both associated with the water districts,” the finance officer pointed out.
Clack and County manager Ed Causey spoke with the Local Government Commission (LGC) at length regarding the possibility of refunding the loans and were told that the LGC will only consider applications to refund debt that will save money over the remaining life of the loan and that show a real cash flow savings each year of the repayment period.
A summary prepared by the underwriter estimates savings to Sampson County’s General Fund of approximately $4.53 million over the remaining terms of the loans, using a 30-year level principal repayment plan.
“The actually repayment (period) of all of the remaining USDA loans is actually 34 years, so we would be reducing our repayment period by four years and saving money each year that we are repaying it,” said Clack. “That’s the best spot to be in.”
The annual savings range from a high of $1,004,820 to a low of $59,683. The average savings per year over the proposed repayment period is approximately $62,000.
Clack stressed that the figures were only estimates and are dependent on market conditions and interest rates at the time the bonds are sold.
The Sampson Board of Commissioners did vote unanimously to authorize the Clack and Causey to complete the steps necessary to do the refinancing, including filing an application with the LGC, naming the special counsel, financial advisor and underwriter, and setting March 6 as a public hearing on the refunding.
The LGC is required to approve the refinancing opportunity. Part of their process includes conducting a public hearing due to debt service payments being paid with ad valorem tax revenues.
During the county’s 2015 refinancing, the estimated savings were initially estimated to be around $4 million before the $6 million savings figure subsequently rolled in.
City mulls refinancing, too
Currently, the City of Clinton has an outstanding USDA loan used to finance the 2013 Downtown Revitalization Phase 3 project and is mulling a refinancing that would save $20,000 a year.
The interest rate on the loan is 3.5 percent and the current payoff amount is $909,679.
“We don’t have the exact numbers yet, but we have solicited some quotes. Current market interest rates continue to be favorable for borrowing opportunities,” City manager Shawn Purvis said. “The city has solicited proposals to refinance this loan and the city could save an estimate of $127,000 and reduce the debt service payment by five years.”
Specifically, the payment term of the loan would reduce from 17 to 12 years and $127,000 would be saved over the course of that time.
“The flip-side is that it adds about $20,000 a year to our budget,” said Purvis. “it’s still a little early to determine whether that’s something we can afford at this point. That’s something we are evaluating.”
A public hearing has already been held about the potential refinancing, during which no one spoke. Purvis said the issue is something that will be broached further next month.
Reach Managing Editor Chris Berendt at 910-249-4616. Follow the paper on twitter @SampsonInd and like us on Facebook.