County in good shape to tackle new debt
Published 5:09 pm Tuesday, May 9, 2023
GATESVILLE – Existing fund balance plus the fact that its annual debt service payments will be nearly cut in half by 2026 puts Gates County local government in a strong financial position to make needed repairs to its aging public water system.
That’s the opinion of Ted Cole of Davenport Public Finance who was on the May 3 agenda of a special called meeting of the Gates County Board of Commissioners.
Gates County Manager Scott Sauer said Cole’s presentation will help the county as it moves forward with building its 2023-24 budget, particularly along the lines of its debt service obligations and cash flow.
Cole’s main focus was on any pending capital projects that the county may have under study and how they plan to pay for those projects. The county is currently seeking state grants to address several issues with its public water system. Even if the county earns a grant, additional funds will be needed to fix problems with the water system.
As for the county’s Fund balance (audited) from 2018 – 2022, Davenport noted that the county had more revenue coming in than going out. Over that time, Cole said that the county’s fund balance has moved from $2.5 million to $8.3 million.
“You’ve grown that fund balance very nicely,” he noted. “You’re unassigned fund balance is almost $4.5 million at the end of the last audited fiscal year (2022).”
That unassigned fund balance, as a percentage of the overall budget, has grown to the low to mid 30 percent range.
“That’s very solid,” Cole observed. “Your reserves have been growing at a faster pace than your budget.”
As for the county’s debt service obligations (as supported by tax dollars), there is $8.4 million of outstanding debt as of June 30 of last year. The lion’s share of that debt ($6.5 million) is for school projects.
Cole said if no new debt is incurred over the next three years, the county’s annual payouts for the current debt is approximately $1.1 million. That will be reduced to approximately $600,000 annually from 2026 through 2029 and from there will be even lower (approximately $500,000 to $400,000 per year) through 2038.
“That’s because you have older debt which is maturing,” Cole said. “That presents you with an opportunity when roughly $500,000 is freed up three years from now. You will have options of what to do with that money.”
Cole said the county has the capacity to take on additional debt. While the capacity is there, what about affordability?
One way he said to take on new debt without increasing the current debt service annual payments is to maintain the current General Fund appropriation ($1,121,077) to pay that debt even though those yearly payments will begin to slightly decrease beginning next year and by larger amounts in subsequent years. That, he said, will create a Capital Reserve Fund Balance totaling $9,267,472 by 2039.
As for financing options for capital improvement projects, Cole said Gates County officials can choose from general obligation bonds (which would need the approval of the voters via a referendum), installment financing, revenue bonds, or special obligation bonds.
Cole said if the county wishes to finance a capital improvement project for its public water system, he noted that water fund is currently operating in the black, meaning it brings in more revenue than it annually spends. However, those net numbers (revenue over expenditures) have fallen over the past three years: $408,160 (2020), $326,363 (2021), and $155,464 (2022).
“Still, that’s cash money on hand that can be applied to capital improvements,” Cole stated. “Plus you have no current debt service payments from your water fund.”
Moving forward, Cole suggested the county develop financial policies that will be in synch with a capital improvement plan. He also suggested a preliminary financial review of the county’s General Fund and Utility Fund, develop a capital improvement planning process, develop utility pro-forma financial modeling, and address other initiatives as identified by county staff and the board of commissioners.
The board thanked Cole for his informative presentation, saying it will provide them with a solid foundation as they move forward with making decisions on needed upgrades to the county’s aging water system.