Debt

 

 

It’s been a year since the black swan of Covid pooped on the world. Drastic cuts were made to the FY2021 Goochland County budget in anticipation of significant revenue pandemic generated shortfalls that never materialized. Since then, the Board of Supervisors has been cautiously adding things back as actual income permits.

Looking ahead to hopefully more normal times, the FY 2022 budget, currently under review pending approval in April, is based on this year’s very healthy increase in property assessments bolstered by a lot of new construction. As reflected in the FY22 proposed budget, the supervisors plan to invest heavily in education and public safety.  Salary enhancements, raises, additional positions, and new equipment that were not funded last year, are proposed for FY’22.

There will be a virtual town hall meeting on March 23 at 6 p.m. at which time the supervisors, school board, and staff will discuss the budget for FY 2022, which begins on July 1. (Go to goochlandva.us/Calendar.aspx?EID=4786&month=3&year=2021&day=23&calType=0 for participation details.)

The elephant in the room when the budget is discussed, however, is the capital improvement plan. This is a strategy to fund big ticket items that have a useful life of more than five years. In response to dreadful proffer legislation passed a few years ago by the Virginia General Assembly, Goochland crafted a 25-year CIP to identify needed capital projects and their best guess costs until 2046. The long-term CIP is revisited every year during the budget process, which includes adoption of the current year’s piece of the plan. Depending on conditions, some items are moved up, others delayed. The operating budget is funded by annual tax revenues, capital projects, due to their cost and life span, are often funded by debt.

During a March 9 workshop, county leaders discussed the CIP and how to fund it. (Go to https://www.goochlandva.us/943/Video-of-Past-BOS-Meetings and click on March 9 to hear the entire presentation and discussion.)

Goochland has a lot of capital needs. The most expensive are replacements for Goochland Elementary School and the Circuit Court House. Discussions about a new GES have been ongoing for most of the 21^st century.

The courthouse, in use for almost 200 years, is long overdue for a replacement. A security annex, added in 2019, solved some of the issues with the historic structure. Recent incidents of civil unrest in the Courthouse complex, underscore the need for a modern facility to conduct safe and efficient criminal justice operations.

A new GES figured prominently in the 25-year CIP. As conditions on the ground changed, school officials decided that a larger—650 student capacity—GES was needed. The increased cost moved the new courthouse back a few years. The larger GES will require redistricting bringing some students that now attend Byrd and Randolph to the new school, which is expected to open in 2024.

A West Creek fire-rescue station; renovations to the “new” high school; and Bulldog Way improvements connected to the new GES could be funded by the county taking on $96 million in debt. Those items are the tip of the iceberg. The near-term county laundry list of needed capital items includes information technology upgrades, vehicle replacements for the county, sheriff, fire-rescue, renovations, upkeep, and maintenance of county facilities, and repairs to the fire-rescue training center on Maidens Road.

Longer term needed expenditures, more than ten years out in the CIP, include replacements for Randolph and Byrd Elementary schools; a district 2 fire-rescue station; and replacements for other fire-rescue stations.

Goochland County, which hopes to add a third AAA bond rating to the two it has already secured—making it the smallest jurisdiction population-wise in the nation to do so—should be able to secure attractive borrowing terms. With interest rates at record lows, why not hold a bond referendum and borrow all the money needed to pay for these things sooner rather than later?

There’s the rub. After avoiding a debt disaster with the Tuckahoe Creek Service District financing, the supervisors adopted a debt policy target capping debt service at a ratio of debt service to general fund expenditures of ten percent, not to exceed twelve percent. The policy also states that new debt, including leases and general obligations, should not exceed 2.5 percent of the market value of taxable property.

Director of Finance Barbara Horlacher reported that, at two percent a twenty-year loan costs approximately $600k per $10 million of debt. She recommended borrowing no more that $100 million to keep annual debt service at or below $6 million. This could be “smoothed” out depending on the timing of debt issuance and payment structure. Borrowing for a longer term, say 25 years, would lower annual payments. There was little support among the supervisors for incurring the maximum amount of debt permitted under the policy.

“We need to have some wiggle room,” observed District 5 Supervisor Ken Peterson. He advocated for flexibility and perhaps sequencing debt incurrence as the trend in assessed valuations becomes clearer. This year’s total county valuation saw a healthy increase, due in large part to new construction. Long term property owners in Goochland also may have noticed higher valuations, but many have not returned to the high-water mark reached in 2009 before the Great Recession.

Horlacher said that the county has several borrowing options. However, if the supervisors decide to pursue issuance of general obligation bonds, which would require a bond referendum on the November ballot, the decision to do so must be made in the next few weeks.

Incurring long term debt, the rough equivalent of taking out a mortgage, is a serious undertaking. The supervisors have important decisions to make about how your tax dollars will be used.