Financing approved for Franklin’s new high school
File photo
Macon County is one step closer in the long march toward a new high school after commissioners approved financing for the more than $135 million-project last week.
Financial Advisor Mitch Brigulio has been working with the county on potential financing options for the project including direct bank loan financing as well as municipal bonds in the public marketplace.
“The public sale of limited obligation bonds was producing better interest rates for you all in the current market, than the bank loan financing, so we have pursued that path and gotten a lot in place to fund the project in that way,” said Brigulio.
The county will use a limited obligation bond, secured by the high school itself acting as collateral for the bonds, to fund the new high school project. The application has been submitted to the Local Government Commission and will be considered for approval at their meeting Sept. 10, just ahead of the scheduled bond sale on Sept. 11. At that point the county will know the final interest rates on the bonds. Closing is scheduled to take place Sept. 26, at which point the county will be able to begin funding expenditures from the bond proceeds.
The resolution that commissioners approved proposed borrowing $76.3 million and at an interest rate not to exceed 5.5%.
“The current market is well below that. We’re well within those parameters right now,” Brigulio said.
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Total cost of the high school is estimated at just under $135 million. The county previously received a $62 million grant for the new high school from the Needs-Based Public School Capital Fund, awarded through the North Carolina Department of Public Instruction with revenue from the North Carolina Education Lottery.
“So, we are looking to fund project costs around $72.8 million, plus the cost of the financing,” Brigulio said. “In the current market, to fund that $72.8 million, the estimated borrowing amount is currently $66.8 million to fund the $72.8 million.”
Over a 20-year period, the county will pay back a total of $100 million to borrow the $66.8 million principal.
Commissioners John Shearl and Paul Higdon both voted against financing for the high school.
The commission also approved a set of financial policy guidelines at it August meeting.
“We’ve talked, over the last several years as part of the development of the capital funding plan and particularly this high school project, about putting in place a series of financial policy guidelines,” said Brigulio. “Certainly, specific to debt and the debt issuance that you’re moving forward with the high school, but also more generally financial policies for the county as a whole to provide some guidelines to continue to maintain a strong financial position.”
The guidelines largely memorialize what Macon County already practices in its financial planning. For example, the capital improvement budget policy solidifies the process the county has been going through on an annual basis to identify 10-year capital improvement plan needs with a focus on, and developed funding plan for, the first five years.
The guidelines establish debt related policies for the county for things like the limited obligation bonds for the high school. The guidelines include stipulations that net debt as a percentage of Macon’s tax base assessed value should not exceed 2%; debt service to expenditures, annual interest plus principal payment, should not exceed 15%; and the 10-year payout ratio, the amount of principal the county is repaying over the first 10 years, should be at least 50%. The guidelines allow the board to make exceptions for extreme needs.
There are also policies laid out for reserve and budget development. These align with the budget process Macon County has been going through under County Manager Derek Roland’s tenure and the reserve policies align with what have been informal policies over the years. It establishes a minimum unassigned fund balance of 25% with a target of 30%.
The fund balance policy lays out what the fund balance can be used for when it is over 30%. Part of the excess would be transferred to the capital reserve fund.
“When it comes to Macon County’s financial position, we’re about to be able to perform $140 million worth of capital projects and we’re still going to have 36% remaining in fund balance,” Roland said. “That did not happen by accident. And that is a testament to the financial stewardship of this board and this organization and the boards that have preceded you.”
The board approved the policies unanimously.
“I think another thing that this does is, these boards change, faces change. No matter who’s here, when these policies are adopted on this board, these board members can go back to these policies and say, ‘This is the playbook. Does it fit within our financial policies?’” Roland said. “As long as we have these to guide us, we can remain the financially solid organization that’s allowing us to do what we’re doing today and going to continue to allow us to do what we’re going to do in the future.”
