Haywood commissioners decide on jail financing
Commissioners in Haywood County will move forward with pursuing a bank loan to finance the jail expansion after Davenport and Company, the county’s financial advisor, issued a request for proposals for installment financing contracts and explained the nuances of the ones they received.
More than 50 financial institutions were contacted. Five were interested.
Capital One, JP Morgan Chase, TD Bank, Truist and Webster Bank all presented proposals, but only Truist guaranteed an interest rate through the proposed April 17 closing date. The others would guarantee their rates through early March, about 45 days before closing.
Truist offered both 15- and 20-year proposals.
The 15-year proposal offered several interest rates based on prepayment flexibility, with Davenport focusing on the 3.51% option as the most attractive. Under those terms, the debt service through 2038 would total $27.9 million on the $21.8 million loan.
That translates to an ad valorem tax impact of 1.77 cents per $100 in assessed value above the current rate of 53.5 cents.
Although a conventional loan is one option, the public sale of limited obligation bonds is another. The interest rate for the 15-year bonds would be 2.83%. Over the life of the loan, the bond would save the county $1.3 million and present a tax impact of 1.73 cents.
For the 20-year proposal, the Truist loan would come in at 3.71%, with total debt service topping $30.2 million through 2043 and a tax impact of 1.44 cents. The bonds, at 3.20%, would incur total debt service of $28.9 million over that same period and result in a 1.41 cent tax impact.
Based on those proposals, as well as discussions with bond counsel and county staff, Davenport recommended the 20-year loan proposal from Truist.
Even though the 15-year bond would result in the lowest interest rate over the life of the loan, the rates wouldn’t be locked in for another 60 to 75 days in and could change for the worse.
“A lot of people dedicate their careers to guessing where interest rates are going to go. What I’ll say is, it’s been very volatile. Rates have been up, rates have been down, but we know this is a rate that is much lower than the planning rate that we’d been assuming at the 5%,” Mitch Brigulio, senior vice president of public finance for Davenport, told commissioners on Feb. 6.
The Truist proposal also offers prepayment flexibility, including the option to refinance or to prepay the loan in whole or in part without penalty after 10 years.
County Manager Bryant Morehead, who has extensive financial and budgetary experience, said he was comfortable with the 20-year Truist option. Discussion amongst commissioners centered on the prediction that rates would go up in the future.
“You’ll remember we did that small $2 million for the [Haywood County] schools central office, and it was BB&T at that time, we got that for 1.99%,” Morehead said. “Rates jump around but considering how much the feds have raised since that last installment loan, I think 3.7% is a good rate.”
Commissioners can opt to raise taxes by 1.44 cents, or make budget cuts to keep the current rate the same, or find some combination thereof to afford the yearly payments. Debt rolling off the books in the coming years will also help.
Commissioner Kevin Ensley set a public hearing for Feb. 20 for the potential adoption of a resolution formally committing the county to the loan process.
In North Carolina, public bodies must gain approval from a state agency, the Local Government Commission, before borrowing. That meeting is scheduled for mid-April.