Alamance County commissioners hold off on 'interest-free' borrowing for school construction

Apr. 7—The county commissioners mostly passed on what is essentially interest-free borrowing for schools, choosing to stay with what voters approved in 2018 and look to COVID relief.

“I think it's irresponsible to put 20 years of debt on the county for projects that other sources could cover,” said Alamance County Commissioner Craig Turner, referring to federal COVID relief and capital reserves.

Interest rates are much lower than they were in 2018 when Alamance County voters approved $189.6 million in bonds for the school district and community college. That gives the county the option to take what is called a bond premium.

Premiums, as Commissioner Bill Lashley said several times, are not free money. They have to be paid back. But, when Commissioner Steve Carter called them interest-free money, Lashley, who has a background in finance, said “pretty much.”

It's a little complicated. Voters approved just $189.6 million in borrowing, but that vote also approved paying interest. Interest rates vary, so their cost won't be known until they are locked in.

The county projected a 5% interest rate when calculating how much it would be paying on those bonds. But unless something very surprising happens, when ABSS issues its bonds April 20, the rate will be much lower than 5%. The peculiarities of the municipal bond market mean investors can bid more than the face value of those bonds, which could potentially bid up their value by $20 million or more. That would mean the county could borrow $174 million instead of $150 million and actually pay less back than it expected to, said Ted Cole with Davenport and Company, the consultants advising Alamance County on managing its $189.6 million in education bonds.

The county can't refuse those premiums, but can put just enough of those bonds on the market to borrow the $150 million voters approved for the Alamance-Burlington School System and the $39.6 million they approved for Alamance Community College, which would mean paying back a lot less.

But it would also leave the county with another $20 million and more in voter-approved bonds it could borrow later if it chose, though it might not be as easy because the county will be carrying another $150 million in debt.

“The bond market won't look at us so favorably this time,” said Lashley.

But that was not something that seemed to worry him.

“I want to take the exact amount that the taxpayers voted,” Lashley said.

The school board was hopeful last month that the commissioners would take the premium and use it to make up for huge increases in steel costs and tackle some of the other $50 million in school projects the bonds won't touch. But the commissioners wanted to see what other revenue sources could do.

There will be a lot of COVID relief money coming to the school system. The federal government hasn't been too clear what that could be used for, but it's not supposed to go for construction.

“Not one dime of that money has anything to do with brick, cement, roofing, toilets — anything that you need to build a school,” said Commissioner Pam Thompson, a former school board member. “CARES Act money is not going to re-roof Sylvan [Elementary School].”

Most is expected to be restricted COVID safety and making up learning loss, but it looks like some could actually be spent on HVAC systems since improved airflow can reduce the spread of the virus. And those, Turner pointed out, represent $10-20 million in ABSS projects. Carter said holding off on some borrowing would let the county see what COVID relief could be used for.

“That gives us a chance then to see how much of that federal money can cover some of these projects,” Carter said, “and then see how much of that $20 million we need to issue.”

The board voted 5-0 to issue bonds to take $150 million for ABSS and $23.7 million for ACC — the college plans to borrow the rest next year — and take enough of that premium to cover what Carter called the municipal bond equivalent of closing costs.

Isaac Groves is the Alamance County government watchdog reporter for the Times-News and the USA Today Network. Call or text 919-998-8039 with tips and comments or follow on Twitter @TNIGroves.

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