What we owe

Looking ahead to what the county’s debt obligations in the next few decades involves dollar amounts in the multi-millions along with potential, and perhaps unavoidable tax hikes. But to get a clear idea about what Orange County owes involves a glance to past projects, purchases and procurements.
While supervisors and county staff worked out the county budget back in the early part of 2009, then-county administrator Bill Rolfe outlined a couple of sobering facts regarding the county’s forecasted financial obligations.
“Based on the estimated borrowing rate for the middle school, fiscal year 2011 will require an additional $2,170,431 for debt payments. This equates to 4.48 cents [increase in] real estate taxes or a $1.06 personal property tax increase,“ Rolfe wrote.
“It doesn’t take a crystal ball to see that the forecast is very, very bleak,“ Rolfe said at that time.
Funding construction of a new middle school may require a hike in the tax rate, but that school’s not the only item for which the county is liable long-term. To build the new 1,200-student school on Flat Run Road, the county issued a $5,500,000 bond in 2008 at 4.35 - 5.10 percent over 20 years. It is scheduled to be paid off in FY 2027 - 2028. An additional 30-year bond in the amount of $44,780,000 at 4 - 5.5 percent will cover the bulk of expenses related to the new school’s construction. The payoff is scheduled for FY 2029 - 2030. That means a child who entered the new school as a sixth grader in the first year the school is open (2011, tentatively) will be 30 years old when the debt associated with the school is paid in full.
While major new projects have only recently gotten underway, current tax dollars are still chipping away at debt for bonds issued years ago. A 12-year $1,279,119 bond at 3.87 percent interest will have a balance due until FY 2017 - 2018. That money was used for water improvements related to the industrial park.
Bonds issued for construction of the industrial park, new library and equipment and maintenance totaled $1,531,200 at 2.82 percent interest for 12 years, with a payoff in FY 2013 - 2014.
Constructing additional classrooms at Locust Grove Elementary School required a $530,000 bond at 5.4 - 5.975 percent for 20 years. Financing for that project will be paid off in FY 2015 - 2016.
Funding for a construction project at Lightfoot and renovations at Prospect Heights Middle School in 1994 came from a 20-year, $925,000 bond at between 6.1 percent and 6.3 percent interest. The final payment for that debt will be made in FY 2013 - 2014.
In 1993, the county issued a $4,450,000 bond at 5.1 - 5.5 percent interest for 20 years to construct additions to the high school and Locust Grove Elementary School. That debt will be paid off in FY 2012 - 2013.
A bond to finance construction of Locust Grove Elementary, and to equip it, was issued in 1990 in the amount of $2,010,000 at 6.4 percent to 7.1 percent interest over 20 years. The final payment will be made in FY 2010 - 2011.
The final payment will be made in FY 2009 - 2010 on debt remain on a 15-year, $1,710,000 bond dating back to 1994 for bonds issued for the construction of a new elementary school.
In 2000, the county issued a 20-year bond in the amount of $2,830,000 at 4.975 - 5.85 percent interest to fund construction and renovation at Locust Grove Elementary School, Orange County High School, Lightfoot Elementary School, Gordon-Barbour Elementary School, Unionville Elementary School and the school board office. It will be FY 2020 - 2021 when the last payment is made.
Renovation and new construction projects at Locust Grove Elementary, Orange County High School, Prospect Heights Middle School were funded by a $25,000,000 bond issued at 4.1 - 5.6 percent for 20 years, with a final payoff scheduled for FY 2021 - 2022.
A 20-year, $1,615,000 bond was issued in 2002 to fund construction and equipping of Unionville Elementary School, Prospect Heights Middle School, Lightfoot Elementary School and Orange Elementary School. The last payment will be made in FY 2023 - 2024.
More projects at Locust Grove Elementary and Orange County High School cost $13,935,316 and were financed at 2.3 - 3.59 percent over 20 years. The payoff is scheduled for FY 2025 - 2026.
The $2,060,157 lease purchase for the Sedwick Building was issued in 1995, at 8 percent over 11 years. Time’s almost up and the final payment will be made in the next fiscal year.
According to Orange County Director of Finance Karen Karasinski, the grand total for outstanding bonds the county must pay off is $82,487,236. In the last fiscal year, 13 percent of county taxpayer dollars were devoted to debt service.
For District 2 Supervisor Zack Burkett and District 4 Supervisor Teri Pace, the most glaring item in the county’s debt is the $5.5 million and $44,780,000 million in bonds for the newest middle school which is now well into the construction process. And it’s that new school on Flat Run Road which carries the county over the line into fiscal irresponsibility according to Pace.
“When you borrow money like the $38 million or $41 million for a middle school, you assume debt on the taxpayers’ back that you didn’t need to,“ she said. “I think when you take on that kind of debt when we could have done it for a much smaller amount is unnecessary debt. When it’s someone else’s money you have to be conservative about it.“
When revenue and expenditure are separated by an abysmal gap, something’s got to give. If it’s not a tax increase that bridges the divide by increasing revenues, then budget cuts—on top of the arterial slashes county citizens saw supervisors make in the last budget cycle—are the only way to reconcile county costs with county coffers.
“It’s going to be real ugly, and that’s so sad because it just wasn’t necessary. I don’t know how you get money out of people that don’t have jobs and have lost their houses,“ Pace said.
Burkett said the 25 percent tax increase looming on the horizon is “atrocious,“ because a significant percentage of the county’s debt service is related to building the new middle school—a project he said was unnecessary.
Instead, Burkett said additional space could have been made for county students by concentrating efforts and resources in another area. By creating a vocational and technical education program in any one of the suitable preexisting buildings in the Town of Orange, Burkett reasoned that a county could realize savings right away, and savings in the future, too.
For example, for around $1 million, the building which housed C.R. Butler until it shut down in early 2009 could be converted into a vocational and technical education center. That could free up space at the high school by about 400 students. As it is, the high school is more than 100 percent over capacity.
According to Burkett’s calculations, he said by making room at OCHS through a vo-tech center elsewhere, construction of a new high school could be deferred for a decade.
Burkett’s got a gripe with a debt still on the books from a construction project passed by past supervisors too. It might make a pretty logo, but the Orange County Courthouse construction-retrofit-update-renovation-expansion doesn’t sit well with him, he said.
“It would have been cheaper to build a new courthouse than to rebuild that one,“ Burkett said. “I think we’re getting very little use from where that money went.“
District 3 Supervisor Teel Goodwin said he considers what the county owes to be a reasonable figure.
“I consider our current debt to be ‘manageable,‘ “ Goodwin said. “The current debt service for 2010 is under $8 million based on a $47 million budget, or approximately 16 percent. The debt service for 2008 was more than twice that amount. Next year it will incorporate a large increase for the new school, but would still be less than the 2008 commitment. In layman’s terms of what you would pay for a mortgage versus your yearly income, this amount is within affordable limits.”
Revenues have seen a decrease, and will likely continue that downward trend until the economy makes a recovery. However, Goodwin said a local tax increase for the next fiscal year is likely in order to fund a few big-ticket projects. And cuts in state funding further increase the likelihood of an increase for county taxpayers, he added.
“Presently, the reduction of revenues makes it more difficult to fund the budget than I would prefer, but that will change,“ he predicted. “As a realist, I understand that some increase is probably needed. There are other capital projects we need to move on such as the water study. The reductions from the state in terms of funding may require short term modifications in operational costs also.“
While the picture’s far from rosy in the short term, Goodwin said the bleak economic outlook can improve by breathing new life into Orange’s tax base.
“It is obvious to me that to fund debt, and to provide the services and capital projects we want and need, the solution to remain viable is to entice business to locate and operate here, not drive them away,“ Goodwin said. “The balance of the tax burden needs to shift away from almost entirely on the landowners toward more commercial and industrial venues.“
District 1 Supervisor Mark Johnson said the county’s getting by for now, but if predicted slashes to state funding become a reality, there could be significant financial fallout locally.
“A lot of our financial outlook is going to depend on the state,“ he said. And at this point, the state’s not sure where it will make budget cuts, although legislators have threatened across-the-board reductions to all programs and departments including law enforcement, schools, constitutional officers and social services.
“If the state goes in and cuts programs they’ve formerly funded we could be in a bind,“ Johnson said. But, he added, it’s too early to say the sky is falling. By the time the state budget is finalized, Johnson said, preliminary warnings that the state’s cupboards are bare tend to materialize with less dire results.
“When you get down to the end game, the cuts are a lot smaller,“ Johnson said. Either way, he added, it will be next year before county officials really know what the state’s intentions are.
“I don’t think we’re going to have a good handle on it until March of next year,“ he said.
Orange County Board of Supervisors Chairman Lee Frame said that while next year’s budget will contain debt service for some high-profile projects, the county can handle what’s on tap in the short term. 
“I believe that the current amount of debt is manageable.  However, the middle school bond service will have an impact on next fiscal year’s budget,“ Frame said.
But with additional expensive improvements and projects to Orange County infrastructure on the radar, Frame said an assessment of precisely how much the county can handle would simply be a good financial planning strategy.
“As part of next year’s budget deliberations we should address policy issues with regard to what amount of debt is manageable, especially given that there are a number of capital improvement items that need funding,“ he said.