County $16.6 million in debt

By Emily Bialkowski

Caledonia Argus

 

Houston County’s ability to borrow money is quite great, but the current County Board is keenly aware of how borrowing money for large projects, such as the Criminal Justice Center and County Services Building, trickles down into years of payments for what is a decreasing and aging population.

On Oct. 29 Bruce Kimmel of Ehlers Investment Partners updated the board on the county’s current bonding situation (debt) and provided facts and scenarios about the county’s capacity to borrow in the future.

In total, Houston County has roughly $16.6 million in debt left to pay on four different bond series. The earliest bond dates back to 2009 with the last bond taken out in 2010.

In 2013 residents will make a $1.1 million payment on that debt. An individual homeowner with a taxable market value of $100,000 will pay about $50 of that figure in 2013.

In 2014 the county’s payment will be $1.2 million. The number will continue to climb to roughly $1.5 million by 2020 and platform there until 2030.

That said, according to Kimmel, the county has the capacity to borrow up to $54 million based on statutory guidelines.

“I’m not here to pedal debt,” Kimmel said, “but many are taking advantage of historic lows in interest rates.”

Ehlers Associates advises more than half of the 84 counties in Minnesota, and Kimmel said each county’s financial philosophy differs.

Some counties use the “pay as you go” method and fork over cash for projects. Some use the “pay as you use” method and borrow for projects. Many use a combination thereof.

“It’s not an either-or decision. We work with counties all over the state that pay for cars with cash but use debt for a major facility,” Kimmel said.

The financial adviser went over the three measures of county debt capacity, including statutory authorizations, credit rating and tax impact, but also admitted: “Frankly those don’t tell us very much about what is affordable at the county level. From an outsider’s perspective, you do have a lot of capacity, but it all comes back to you, commissioners, because it doesn’t matter what third parties say when you have a room full of citizens,” Kimmel said.

 

Two scenarios

To make the most of his visit, Kimmel presented two bonding options should the county ever want to borrow additional funds.

If the county were to go out for a $3 million bond in 2014 at a 3 percent interest rate, it would need to levy about $220,000 a year to pay off that debt in 20 years.

If the county were to shop for a $7 million bond with a 3 percent interest rate, it would need to levy about $510,000 a year over 20 years.

The presentation was informative in nature, but Commissioner Justin Zmyewski pressed Kimmel to consider the bigger picture.

Zmyewski explained that Houston County’s population continues to decrease while simultaneously increasing in age. In 2010, for example, the county recorded a population of 19,718 but dropped to 18,837 by 2012.

“Do those numbers ever get taken into account?” Zmyewski asked.

Kimmel said he and his organization can do a 10-year budget forecast and look at the operating budget, capital improvement needs, existing debt service and tax base to help the county see what the picture may look like. They can also add into the equation how other taxing entities, such as schools, factor into the equation.

“You’re not alone in having a lot of capital improvement needs and feeling stressed over certain parts of your population,” Kimmel said. “Tax base is really key.”

Kimmel also suggested that equity be a consideration for any big ticket decision. He asked, if something has a 50-year life, does it make sense to have the current taxpayers foot the bill or spread the bill out over time for all beneficiaries. Conversely, he asked if it would make sense to spread that cost out if the item or project has a short life.

“It’s important to know what you’re aiming toward one way or another,” he said.

 

Preview

The county’s current debt situation and capacity to borrow in the future is somewhat punctuated by the fact that, even with a 3.52 percent levy increase, the 2014 budget is $170,000 in the red as it sits today.

That number will get scrutinized in the weeks to come and will likely be altered.

 

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