Borrowing to Pay Debt

Decoding Municipal Bonds

WINNSBORO – County Council has recently borrowed money to pay interest on money it borrowed last year. On Feb. 12, the County issued a new general obligation bond in the amount of $769,177.88 for the purpose of making the first interest payment on the $24.06 million installment purchase revenue bonds (IPRB’s) that were issued almost a year ago on April 29, 2013, to finance the costs of acquiring, constructing and equipping various projects for the County, according to Interim County Administrator Milton Pope. While former County Administrator Phil Hinely was quoted in both Fairfield County newspapers last March as saying the County issued the $24 million IPRB’s, Pope told The Voice last week that the IPRB’s were not issued by the County but by the Fairfield Facilities Corporation (FFC).

According to Pope, the FFC is a non-profit corporation that was created by the County Council on March 25, 2013, to allow Council to borrow more money than it could otherwise legally borrow within its constitutional debt limit, which is equal to 8 percent of the assessed value of taxable property in the County. For Fairfield County, that limit, as of March 2, 2013 was $4.5 million according to the ordinance authorizing the $769,177.88 general obligation bond.

And while revenue bonds are, by law, to be repaid with a revenue stream, such as a County-owned water company or toll road and not ad valorem (property) taxes, a unique feature of IPRB’s is that a mock revenue stream can be created from the issuance of general obligation bonds that are then paid off with ad valorem taxes that have not been approved by the electorate.

So, after creating the FFC by resolution last spring, Council passed Ordinance 614 on April 15, 2013 to authorize an unlimited number of general obligation bonds to be issued at unspecified dates, in unspecified amounts. The first one, issued on Feb. 12, will cover the 2014 interest payment on the $24 million IPRB’s. Council could continue to issue more general obligation bonds each year until their $4.5 million debt limit is exhausted. According to the payment scheduled for the $24 million IPRB’s that was published in the County’s FY2013 audit, the interest and principal payments were loaded so that the bulk of the payments would begin in 2019 at which time the new ad valorem taxes from the second nuclear reactor at the V.C. Summer Nuclear Station in Jenkinsville (scheduled to begin operations in 2016) would start picking up the heftier payments on the IPRB’s.

Of the new $769,177.88 general obligation debt, $40,000 went to the County’s bond counsel, Parker Poe Adams & Bernstein LLP, for bond issuance fees, and $5,900 went to BB&T for other fees. The County will pay an additional $69,674.25 in interest on the bond over the next seven years for a total payout of $838,852.13.

While Council Chairman David Ferguson (District 5) issued a notice to County Auditor Peggy Hensley and County Treasurer Norma Branham on Feb. 12 to levy and collect taxes on all taxable property in the County sufficient to pay the principal of and interest on the 79,177.88 general obligation bond, Pope told The Voice that new taxes will not be levied to pay for the bond. He said sufficient property taxes have already been levied to cover the payments.

Even though the law allows counties and municipalities to issue general obligation bonds if they do not exceed the 8 percent debt limit, Article 13 of the S.C. Code of Laws, annotated sections 4-9-1210 and 11-27-40, provides voters with a 20-day window in which to initiate a referendum to repeal the bond. To initiate such a referendum, within 20 days after the County publishes a notice (in a newspaper of general circulation in the County) that it has adopted the bond ordinance, not less than five qualified electors (voters qualified to vote in the County) must file notice with the clerk of court and with the clerk of council of their intention to seek a referendum. Then, within 60 days after the enactment of the ordinance authorizing the issuance of the bond, a petition signed by qualified electors of the County equal in number to at least 15 percent of the qualified voters of the County must be filed with the clerk of council requesting that the ordinance be repealed. Council can either hold a referendum on the ordinance or rescind it. An affidavit of publication of such a notice for Ordinance 614 was published March 22, 2013.

When Council passed Ordinance 614 last spring to authorize the $769,177.88 general obligation bond, references were made in public meetings and in the newspapers by Council members and Hinely, referencing the ‘bond that Council passed’ not as a general obligation bond that would be issued in the future to pay for the $24 million IPRB’s but as the $24 million revenue bonds. A news article on the front page of the March 29 issue of The Voice attributed the following to former County Administrator Philip Hinely: “the $24.06 million in bonds Council voted on Monday night (March 25, 2014) aren’t necessarily ‘new’ bonds, but are a ‘rolling over’ of the 2009 (general obligation) bond that kick-started the 10-year plan. Therefore, he said, they ($24 million bonds) don’t come with a tax increase. If we didn’t do it that way, we would have to issue new bonds,” Hinely said, “and that would increase taxes.” Asked to explain how the $24 million bonds were a ‘rolling over’ of the 2009 general obligation bond, Pope said he would get back with that information, but had not at press time.

Next week The Voice will look more closely at the use of IPRB’s by small towns and counties and why some S.C. legislators have begun to crack down on the increasingly widespread use of installment purchase revenue bonds.