County Council Votes on New Courthouse Annex Funding
By Steve Garbacz firstname.lastname@example.org (Shared with permission from KPC Media).
ALBION — Although at times there long pauses as Noble County Council members considered some weighty decisions, at the end of the day, all seven members were in agreement about how to move forward funding a new county annex building.
Council members did reverse course a bit from a decision made in December, as they opted to change the type of bond they'd like to take out to fund the proposed $15 million project to build a new annex building on the site of the Noble County Prosecutor's Office and renovate the courthouse.
In December, council members received a presentation from their financial consultant Jeff Peters, who ran through estimates about the size of the bond, the tax impact it might have and options on how to borrow the money.
At the time, Peters informed council members they could fund the payback either through property taxes or income taxes and that they could either borrow via a general obligation bond or through a special bond-lease agreement.
After hearing the presentation, council members had decided to borrow via a lease bond and pay it back with property taxes.
On Monday, they took some time to rethink that decision after starting a discussion with Noble County Highway Department Engineer Zack Smith, who is coordinating the annex project for the county.
Smith opened by discussing the need to obtain two assessments of the Noble County Courthouse, since its value would be put up as collateral in a lease bond. Those appraisals were expected to cost about $4,000 each and would be required to move forward with the process.
But that expenditure caused council members to then step back and ask themselves again why they had chosen a lease bond over a general obligation bond.
Smith reminded them that the main difference between the two is that general obligations utilize a government's "bonding capacity," the maximum the state will allow a unit to borrow based on its tax base. Lease bonds are another option that go outside of that capacity, allowing governments to borrow amounts larger than their innate capacity.
Lease bonds have some additional cost to borrow the money and the county also then needs to form a building corporation, which technically owns the building until the bond is paid off. That creates another layer of bureaucracy in the process, too.
Noble County has enough bonding capacity to fund the estimated $15 million annex project, although Peters had warned in December doing so would essentially tap out the county's ability to borrow.
Council member George Bennett, who led much of the discussion Monday, raised this point — is that necessarily a bad thing?
Currently, the county doesn't have any other projects on the horizon that it would need to borrow for. Also, by maxing out that borrowing capacity, Bennett posited that it would send the message to taxpayers that this is the one and only thing they'll be paying for.
Noble County generally doesn't take on projects that require major bonding. The county used a lease bond in the 1990s in order to fund the new Noble County Jail. When that loan was paid off in the mid 2010s, the county then took out a small bond to build a new garage building at the highway department, a loan that will be paid off by the time an annex bond would begin payback.
"If we’re not concerned about (bonding capacity) and I’m certainly not concerned about being able to borrow more money ... the cost of issuing that bond would be somewhat lower than with a lease bond," Bennett said. "We expect it is somewhat lower, which seems like an advantage for a GO bond."
Council member Tom Janes, who entered Monday's meeting noting he had questions from local farmers about the tax impact of the annex project, understood the point Bennett was making about maxing out the county's borrowing.
"That sends out a message that we’re doing this big project, but we’re not contemplating doing some other big project," Janes said.
The county actually would recoup some of its bond capacity as it begins paying the loan, Smith said. So if, for example, a few years from now a small project comes up, the county could have the ability to bond if it really needs to.
From there, the advantages cited of using the general obligation began to snowball.
"We’ll save the money of appraisals," councilwoman Mary Wysong said.
"And you would save the legal expense," Bennett added.
"It would eliminate some uncertainty (in the appraisals)," Smith chimed in.
From there, council President Denise Lemmon called for new motions to decide on the type of bond and how it would be funded. She was initially answered by silence, as council members appeared hesitant to be the ones to offer up the motion to set the borrowing process.
Eventually, Wysong broke the silence, moving to borrow using a general obligation bond instead of the lease bond. Bennett seconded and the council voted unanimously 7-0 to support it.
Next, council members tackled the issue of whether to build in reimbursement of design expenses into the bond. Right now, the county is paying design and engineering costs out of cash on hand, but it's possible to build those costs into the loan and get reimbursement.
County coordinator Jackie Knafel said the council has a budget of $1 million from the courthouse fund and rainy day fund and both have healthy balances if they need to be tapped for a little more.
Smith noted that one downside of building those costs into the bond is that it raised the amount being borrowed. And since the county is trying to keep the cost under about $15 million — an amount that if, surpassed, could trigger a countywide referendum on the project — the council might not want to pad the bond.
Bennett agreed, moving not to seek reimbursement of design costs from the bond. Janes seconded and that motion passed 7-0.
Then, the council took another long pause in deciding whether to fund the bond either by property taxes or income taxes.
In December, the council had easily made the decision to choose property taxes at the advice of Peters. Funding the project through income taxes is possible, but a major downside of that method is that income taxes have to be shared with cities and towns as well, meaning the total amount taxed would need to be far above just the $15 million needed for the project.
Peters' estimate in December showed the average household earning a median $52,000 income would pay an income tax of about $131 annually.
In comparison, a property tax bond would cost the average homeowner around $14.50 per year, Peters estimated.
Although the decision to go with property taxes was an easy one in December, council members glanced around the table at each other for a long pause.
Councilman Jerry Jansen, who made the original motion in December, offered it again this time, to fund the bond via property taxes. Bennett seconded. In a roll-call vote, it once again proved unanimous, 7-0.
Then, in one final vote, council members suggest they commit now that any money earned off of sale of two buildings that will be vacated when the annex is complete — the county's south complex on S.R. 9 and its Weber Road building — would be put toward bond payments to further reduce the cost and payback schedule.
Jansen made that motion, seconded by Bennett and it, too, was approved unanimously.