Borrowing money is a good thing! Provided you have the means to pay off the loan, and you can clearly see the principal and interest payments over time..
Jefferson County’s biggest and longest-term debts are the Road Bonds. The 2012 bond is for $4,615,000. The 2018 bond is for $5,844,000. The 2021 bond is expected to be $4,000,000. Each has a 20-year term until the bonds are paid. According to the 2020 audit, page 34, the annual maximum payment for the 2012 bond is $265,000, and for the 2018 bond is $385,000. These bonds overlap until 2032; hence, Jefferson County would be making a $650,000 payment until 2032 when the 2012 bond expires. And let’s not forget that the 2021 road bond will add a few hundred thousand dollars annually on top of the $650,000 as soon as that deal is signed and done.
Jefferson County has to be sure the gas tax revenues can continue to pay the annual payment. The first line on page 34 of the Audit titled “Note 9 Long Term Debt” reads, “The County’s long term debt is to be repaid from governmental activities only.” I interpret this to mean, that if there are insufficient gas tax revenues to make the payment, the County’s general funds will have to make up the difference. As we have already seen, the general fund has been unable to cover the expenses of the last few years. The Board of County Commissioners approved a budget amendment to ‘zero-out’ the accounts, so, going forward, a clearer and more transparent view of the accounts can be made.
One assumes that the bond underwriters would have done their due diligence, and calculated all the possible payment risk scenarios. Really, there is little risk to them as the County would have to make up any gas tax shortfall from the general account. What happens if there isn’t enough money in the general account? The money would come from County reserves (savings). Remember that’s where the $1,941,307 budget amendment is coming from.
Given reduced travel during the pandemic, auto manufacturers’ commitments to electric vehicles, growing numbers of electric vehicles on the highway and a 25% fuel efficiency improvement requirement by 2026, the number of gallons of gasoline sold could decline faster and faster in the coming years. Gallons sold determine the gas tax revenue and not the price per gallon at the pump. Possible gas sales decline puts more importance on the Board’s ability to see hard copy reports of gas tax revenues. The Department of Revenue collects those numbers on a regular basis, and the County knows the annual bond payment demands, so it should be a simple thing for the accounting function to produce monthly reports showing revenue against debt expense for each bond and in total. Our Board needs this information for proactive financial management, and to make informed decisions on the citizens’ behalf.
Failure to keep a sharp eye on the balance between gas tax revenue and debt payments could eventually put the County in a worsening financial position. Debts have to be paid.
Phil Calandra