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Building program has Loudon County pondering big financial questions

http://www.knoxnews.com/news/2011/oct/12/building-program-has-loudon-county-pondering-big/

By Hugh G. Willett

Wednesday, October 12, 2011

 

It's by far the biggest financial decision Loudon County has ever made.

The Loudon County Commission decided Oct. 3 to borrow $43 million for a long-awaited and debated school building program.

Key issues still must be addressed, however, including whether to go with fixed or variable rate loans and terms of 20 or 25 years. The commission's decisions today could impact the county's ability to borrow in the future.

Like other municipalities across Tennessee, Loudon County is also facing a state comptroller's deadline to create a debt management policy by the end of the year.

After a motion at the Oct. 3 meeting by Commissioner Don Miller, the commission authorized the county to sell $10 million in bonds so that it can take advantage of a federal loan program. The money should be enough to start excavation work for the new schools by the end of the year.

The initial phase of the building program includes a new K-12 school in Greenback, a new middle school in Loudon and upgrades to the Philadelphia school.

Miller said he would like to see the county implement a debt management policy and use that policy as a guideline when borrowing the remaining $33 million.

"Our plan is to have the policy in place before we go out for the other $33 million," he said.

Commissioner Sharon Yarborough cast the single dissenting vote against the $10 million loan. She said she wanted more information about loan terms.

Yarborough agrees with getting a debt management policy in place before seeking more funding. To that end, she wants the county to come up with a long-term capital improvement plan.

"My preference is to be fully informed before we make any more decisions," she said.

The way the loans are structured to be paid back can affect the county's future borrowing potential, Yarborough said.

She said her ideas are consistent with the basic principles outlined by the Tennessee's comptroller for managing debt.

State Comptroller Justin Wilson mandated last year that all municipalities in the state adopt debt management policies by Dec. 31.

The policy is to be based upon four guiding principles:

DEBT MANAGEMENT

In neighboring Roane County, a debt management policy was approved in March under the guidance of Roane County Executive Ron Woody.

As a former adviser to University of Tennessee's County Technical Assistance Service, designed to offer guidance and research to county governments, Woody has been providing debt management advice to local governments for years.

"We were probably one of the first counties to implement a new debt management policy since the state mandate. We've been getting calls from other counties," he said.

A good debt management policy should include only borrowing money for long-life assets, such as schools. That would exclude borrowing money for consumable assets such as police cars, Woody said.

Among the best practices that should be adhered to is to create benchmarks, such as maintaining a targeted per capita debt ratio, according to Woody. In Roane County's case, the target per capita debt is $800 with a maximum of $1,400, Woody said.

Loudon County's $43 million in new debt, combined with an outstanding loan for $12 million, puts the county debt upwards of $55 million. Divided by approximately 48,000 residents, that creates a per capita debt of $1,132.

Perhaps the most controversial of the four principles is the need to avoid conflicts of interest. In the past, some municipalities have hired debt advisers who were in a business relationship with the lending institutions, Woody said.

According to Miller, Loudon County is using Joe Ayres from Morgan Keegan as an adviser, but will not consider loan proposals from Regions Bank because of its relationship to Morgan Keegan.

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10-12-2011