Last week the Oneida County Administration Committee inched towards resolving the dilemma of how to fund the county’s capital improvement projects (CIPs) for 2020, all of which have been previously approved by the CIP subcommittee and the administration committee.
The county board approved spending $4 million from the county’s general fund for three projects, but the two committees determined 14 projects were of vital enough importance to green-light. The total needed to fund all of them will be approximately $6.3 million, leaving the county $2.3 million to find for spending.
May have to borrow
The single most expensive project is replacing the county’s 11-year-old public safety radio network at a cost of $3.5 million. Other projects include replacing old tasers carried by members of the sheriff’s department, installing a new body scanner at the jail, and county highway reconstruction.
The administration committee also met the previous week and its consensus was to recommend to the county board funding all 14 projects at full-price rather than cutting or postponing any of them. That scenario most likely means the county will need to borrow money, which sparked a debate amongst supervisors over the merits of borrowing when the county’s general fund could cover the cost.
The balance in the county’s general fund is approximately $16 million, but best accounting practices dictate the fund should be left at all times with enough cash-on-hand to pay for 3.5 months worth of operating costs.
After accounting for that 3.5-month reserve fund, the county had roughly $8.5 million to spend at the beginning of 2019, but more than $2 million was used on CIPs and unforeseen operating costs during the year. Oneida County finance director Darcy Smith estimates the general fund’s actual excess will be approximately $6.4 million at the beginning of 2020.
The county board also approved spending $376,000 from the general fund for 2020 operating costs, which would leave $5,978,479 in undesignated funds. If the county were to pay for all 14 projects from the general fund (and still hold in reserve 3.5 months’ operating expenses), there would still be roughly $320,000 left to find for those CIPs.
Smith’s recommendation is to use only the $4 million from the general fund — as approved by the county board — rather than to deplete the excess. She warned of unforeseen expenses and a potential reduction in the county’s bond rating as reasons to leave a nest egg of roughly $2.3 million on top of monies set aside for a 3.5-month emergency reserve.
Smith cited current low interest rates as a good reason to borrow the difference.
“We’re going to have to borrow,” she said at the meeting on Dec. 11.
“Our goal for the January county board meeting is to present to the county board and get these additional projects approved,” county board and administration committee chairman Dave Hintz said. “And I think we should look at the total package of 14 and the dollar amount.”
He said he believed the county board will have, basically, two options.
“And we want them to understand the impacts of those two options,” Hintz said. “One option is to take the whole amount out of the general fund.”
A question there, he said, would be what that would mean to county as far as its bond rating.
“What does it mean for the future?” Hintz asked. “And the second option is to borrow some money. And we want the county board to fully understand what that means: who would be taxed and when? How would that money be borrowed?”
The best option?
Options discussed by Smith and committee members included traditional bank loans, as well as borrowing from the State of Wisconsin’s Board of Commissioners of Public Lands (BCPL), which writes low-interest notes to counties and municipalities regardless of bond ratings.
“It looks like the best borrowing option — if we go down that path — is the state fund,” Hintz said. “That interest rate is three and a quarter percent at this point (for a term of two-to-10 years). And it’s very flexible, meaning you can have draws on it. So it’s almost like having a line of credit. So if you want to borrow, say, two and a half million dollars — whatever the number is — and you can have four draws. And you only draw the money if you need it, and you only pay interest on the money you draw.”
He said there would be no up-front charges and no pre-payment penalties.”
“Is that borrowing money for 2020 projects?” committee member Robb Jensen asked. “Is it borrowing for ‘20 and ‘21? Is it for ‘20 through ‘22? What are we borrowing for?”
He noted CIPs already anticipated through 2024 total more than $8 million, with more unforeseen asks sure to follow.
“Well, we’re not there yet,” Hintz answered. “But kind of where we’re headed is just for the 2020 projects. Or, we could take a longer-term view. But what we want to present in a clear fashion so that the county board would understand what it means if we took everything out of the general fund and what it means to borrow money. And we want to analyze, and it appears as though we’re not completely done with that.”
“It appears as though, if we’re going to borrow money, is the state option due to the fact that the interest is reasonable and the flexibility of the loan,” Hintz continued. “That’s where I think we’re headed, and the first step for the county board in January is to get everyone to agree that all of these 14 projects are needed. I think that will be a relatively easy sell.”
“I want to know what the limit to take out of the general fund is that still maintains that AA (bond) rating that we want,” Jensen said. “And we’ve gone through the capital improvement projects and we felt that they’re all very needed.”
“I think we’re through with that,” Hintz replied.
“I don’t think so,” Jensen said. “I can go through there right now and say ‘Some of these things, we can cut.’ We’re at that point where if people don’t want to borrow money, they need to understand in order to keep our good bond rating, some of these capital improvements need to get cut.”
Cuts if no borrowing
Continuing with that line of thought, Jensen said if the county didn’t want to borrow, then something needs to be cut.
“We may need to say ‘We’d like you to get all of your tasers in one year, but you know what? It’s going to be two,’” he said. “We increased our highway funding to $950,000. Last year it was $450,000. We may need to put that back at $500,000. We want a brine facility. Do we have to have it? No, it can wait. A fuel system upgrade? It can wait. We might have to get (fuel) from Kwik-Trip.”
Everybody, he said, wants everything.
“There may have to be some cuts and people are going to have to feel some pain,” Jensen continued. “I think we have a hard sell with borrowing ... and if we’re not going to borrow, we need to maintain our general fund balance that maintains our rating because we’re going to have to borrow at some time. We’re just not having much foresight here. We may have to go back to some departments and say ‘We want to do these things for you, but you know what? We can’t.’”
Cuts as a last resort
Committee member Billy Fried asked Smith if the BCPL cares about the county’s bond rating.
“No,” Smith answered. “They don’t look at our bond rating.”
“Is there a scenario of borrowing or using a credit line where that debt isn’t put onto the taxpayers?” Fried asked.
“Yes,” Smith replied. “The BCPL gives you your choice of how you want to fund it. You can put it on your levy or pay it out of your general fund.”
“If we do have to go that (borrowing) route,” Fried said, “That will be more palatable to the supervisors.
“I think we have two options,” Hintz said. “One is to take it out of the general fund for all 14 projects. The second option is to borrow some of the money for the 14 projects. And there’s different ways to borrow money ... but that’s a decision for the full county board and we want to lay it all out on paper to try to answer all their questions ... to get it to a conclusion is more difficult and it becomes a more complex question politically.”
“The fundamental question to me is do we protect the general fund by having a minimum balance in there that maintains our bond rating,” Jensen said. “Is that important or not? If the decision is that we don’t want to borrow for 2020, I need to know what that minimum number that we should have in our general fund to maintain our high bond rating ... could we cut $500,000 from 2020 projects, pay for them out of the general fund, and not affect our bond rating?”
He said if the county board didn’t want to borrow then it would be essentially acknowledging something needed to be cut.
Committee member Bob Mott expressed the belief borrowing money is a question of when, not if, for the county.
“We’re just delaying what we need to do,” Mott said. “If you use your piggy-bank up, then there’s nothing more in the piggy-bank. And next year, you’re going to have to borrow. We either borrow now or borrow later. I think it’s the degree of borrowing we have to do — if we want to maintain these projects.”
“In my opinion, we go to the county board and give them one option where we borrow money ... and one option where we deplete the general fund,” committee member Ted Cushing said. “We’ve got to come up with two plans to present to the county board in January and let the 21 supervisors make a decision.”
Like Jensen, though, Cushing discussed CIP cuts and/or delays as a third option.
“If it goes down where they don’t want to borrow any money, that’s when we say ‘OK, then maybe this shouldn’t be done; maybe this one should be postponed’ because we don’t want to deplete the general fund to the point that it’s a problem,” he said.
Hintz said cuts or delays should only be discussed as a last resort, and then by the full county board.
“I think we go in with the base plan that we’re going to do these 14 projects,” he said. “If we can’t do that because people don’t want to borrow or we don’t have enough money, or if it hurts the general fund, then we have to adapt. But our base plan is to do the 14 projects that we’ve worked so hard to develop — and I honestly think they’re needed.”
He then scheduled another administration committee meeting for early January, before which, he and Smith would work out detailed plans for two options (not including cuts or delays) to outline for the county board what the implications of each option might mean for the county.
Those “if-then” statements will include Smith’s research on whether borrowing from the BCPL or private sector would yield a better interest rate and how much of the general fund reserves could be used before adversely affecting the county’s bond rating.
“By early January, we can have these plans,” Hintz said. “Plan A: taking out of the general fund. What does that mean? Plan B: borrowing. What do we borrow, and what do we think is the best way? And we’ll look at what it costs the taxpayers and the advantages and disadvantages of both.”
He indicated every effort would be made to present everything as clearly as possible to the county board. “When we get to the end, maybe someone will say ‘Well, maybe we only do 10 of these 14 projects,’” Hintz said. “The first step with the county board is to tell them what the 14 projects are ... and then we move on to how to pay for them and if we can’t come to that conclusion, then we look at other alternatives.”
“Well, do we have enough people that want to borrow?’” Jensen asked rhetorically. “I don’t see that happening. Maybe we will. But that will be the discussion.”
“Let’s let Darcy come up with these plans and I can help her with that,” Hintz said. “I’d like to end on a very positive note. We’re in excellent financial condition. Our tax levy is relatively low compared to the other counties. It’s not that we’re bankrupt. We have to spend some money on these capital improvement projects.”
What it boils down to, though, he said, is “How can we fund these? “
“So we shouldn’t feel sorry for ourselves,” Hintz said. “We have some hard decisions, but we want to do the right thing for the county and the taxpayers and the citizens. I think we’re clearly one of the top counties in the state as far as our financial condition.”
The same thing
“Can you tell me what’s different right now than what was different at the end of the last meeting?” Fried asked the committee expressing frustration. “Or the meeting before? I feel like we’re saying the same thing. No disrespect to anyone; these are tough issues to deal with. But I think we’re just duplicating our discussions.”