Posted: 8/14/07
County board reviews various options for funding CJC project
By Charlie Warner
Argus News Editor
Several misconceptions about the financing of the criminal justice center (CJC) Houston County wants to build adjacent to the courthouse in Caledonia were addressed during the August 7 county board meeting. Jerry Shannon and Carolyn Drude of Ehlers & Associates, Inc., which is the firm hired to develop a financial plan for the CJC project, walked the county commissioners through the various bonding alternatives available.
"Minnesota statues set forth various limitations under which counties may incur debt," Shannon began. "Counties are subject to a net debt limit equal to two percent of taxable market value. Based on the countyís certified taxable value for taxes collected in 2007 of $1,695,213,800 the county has a net debt limit of $33,904,276. The county currently has no debt. We certainly do not recommend the county incur debt close to the $34 million limit. A reasonable amount of reserve capacity should be maintained in the event unforeseen circumstances require the issuance of additional debt."
Shannon went on to explain the state legislature realized residents of many counties did not want to pay for new jails and gave counties the authority to issue debt for jail purposes without the necessity of a referendum through Chapter 641 of the Minnesota statutes.
Bonds issued pursuant of Chapter 641 are eligible for a state credit enhancement program, where the state guarantees the payment of debt service. With this guarantee, the bonds would be rated Aa2 by Moodyís Investors Service or AAA by Standard & Poor. This rating would provide the lowest cost financing for the county.
It had been previously reported if the county wanted to bond for the CJC without holding a public referendum, it would have to use one of two types of lease bonds, which require a higher interest rate.
According to Shannon, that is incorrect, because of the state credit enhancement program.
The county also has the option of issuing capital improvement project bonds pursuant to Chapter 373. The proceeds from these bonds can be used for most capital expenditures, but a five-year plan must be prepared. The county is required to hold a public hearing on the plan. If the county receives a petition signed by five percent of voters casting a ballot in the last general election, a referendum will be required for the authorization to issue bonds.
But, Shannon pointed out, this would require a levy based on referendum market value (RMV), which would exclude approximately 47 percent of the property in Houston County. RMV excludes all farmland (with the exception of one acre of land, house and garage) and all recreational land.
The county also has the authority to enter into a lease purchase obligation issued by the County HRA to finance court facilities and other offices. Chapter 641 and Chapter 373 bond issues are for jails and other law enforcement facilities. If the court facilities are attached to the jail facilities, there has to be a distinct delineation of allocated space to ensure proper allocation of costs.
Once the county commits to the project, it has the authority to issue bonds based on estimated costs or it may wait until construction bids area taken.
The project could also be financed in phases, which could also be a savings to the county. Shannon said if the bond issue was $10 million or less, it would be "bank qualified," which would allow the lending institution to write off 75 percent of the interest per year. If the lending institution could write off that much interest per year, a portion of the savings would be passed on to the county with a lower interest rate.
"The county could issue a portion of the bonds one year, and the remainder the following year to qualify for that financing program," Shannon said.
Shannon also provided the board with some projections on the property tax impact different bond issues would have on Houston County residents.
(Please see accompanying graph)
When asked if he foresees interest rates fluctuating in the near future, Shannon responded that interest rates have increased slightly during the past year, but he hasnít seen any real spikes.
"I think the feds will continue to keep interest rates at a flat rate," Shannon concluded.
Blended obligation jail facility bonds of $15 million over 20 years:
Taxable market value Voted bond Non-voted bond
Residential homestead
$100,000 $118 $ 84
$150,000 $177 $126
$200,000 $236 $168
Commercial/industrial
$100,000 $118 $126
$200,000 $236 $274
$500,000 $589 $779
Ag homestead
(House and one acre)
$100,000 $100 $ 79
$200,000 $100 $125
$500,000 $100 $264
Agricultural
Non-homestead
(dollars per acre)
$ 900 $0.00 $0.76
$1,100 $0.00 $0.93
$1,300 $0.00 $1.09
$1,500 $0.00 $1.26
Seasonal/recreation
Residential
$ 50,000 $0.00 $ 42
$100,000 $0.00 $ 84
$150,000 $0.00 $126
$500,000 $0.00 $421
Blended obligation jail facility bonds of $17.5 million over 20 years:
Taxable market value Voted bond Non-voted bond
Residential homestead
$100,000 $138 $ 98
$150,000 $207 $148
$200,000 $275 $197
Commercial/industrial
$100,000 $138 $148
$200,000 $275 $320
$500,000 $688 $911
Ag homestead
(House and one acre)
$100,000 $117 $ 92
$200,000 $117 $146
$500,000 $117 $308
Agricultural
Non-homestead
(dollars per acre)
$ 900 $0.00 $0.89
$1,100 $0.00 $1.08
$1,300 $0.00 $1.28
$1,500 $0.00 $1.48
Seasonal/recreation
Residential
$ 50,000 $0.00 $ 49
$100,000 $0.00 $ 98
$150,000 $0.00 $148
$500,000 $0.00 $492
Caledonia Argus
314 West Lincoln St.
P.O. Box 227
Caledonia, MN 55921-0227
507/724-3475
E-Mail: editor.argus@ecm-inc.com