Updated: 9:59 a.m. Wednesday, March 18, 2015 | Posted: 6:00 a.m. Wednesday, March 18, 2015

JOURNAL-NEWS ANALYSIS

Varying levels of debt in Butler County’s largest communities

By Denise G. Callahan

Staff Writer

BUTLER COUNTY — 

    The largest jurisdictions in Butler County have varying levels of debt, and those numbers are driven by a number of variables, including growth, services offered, policies and bank balances, to name a few.

    Debt levels run the gamut in the county from a high of $267 million in Hamilton where they run all their own utilities to a low of $7.5 million in Oxford, home of the county’s largest employer, Miami University. The total debt carried by a governmental entity doesn’t necessarily tell the whole story, Hamilton’s numbers look huge but only $45.9 million is paid for with taxpayer money, the rest is paid by the city’s water, sewer, gas and electric customers and other means. Hamilton is the only city in Ohio that operates all four major utilities.

    The county is on an aggressive path toward eliminating a heavy general fund debt load that reached $91 million in 2009, and now sits at $45 million. The commissioners recently approved an accelerated schedule for paying off $17.5 million worth of bonds issued in 2006, to pay for repairs and upgrades on several county buildings, like the jail and the Government Services Center.

    The principal on the 10 bonds currently stands at $10 million and by refinancing at a lower interest rate and shaving five years off the length of the loan, the county will save $1.2 million. Andy Brossart, the county’s financial consultant, said the commissioners back then had two choices, either raise the sales tax which is tied with three other counties for the lowest in the state at 6.5 percent, or issue debt.

    “Back in the mid-2000s the county was the second or third fastest growing county in the state. When you’ve got a county that’s developing that fast and has infrastructure needs and you’ve got a very low sales tax, one of two things is going to happen,” Brossart said. “Either you raise the sales tax and use a mixture of debt and cash or you don’t, which they didn’t. You’re forced into either ignoring what you have to do for development or issue debt… It’s like pick your poison.”

    Brossart said when the county issued the 2006 bond series they probably should have paid cash for some things that had price tags under $1 million. Administrator Charlie Young said there are times when issuing debt is appropriate but now they are in pay down mode.

“It is clear that we have an opportunity to greatly reduce if not completely eliminate the general obligation debt for the county, in a fairly short period of time,” he said. “That will then free up a significant amount of funds to meet the challenges that lay ahead.”

    Finance Director Tawana Keels said annual debt payments that were over $10 million in 2009 will drop to $800,000 by 2023. The general fund debt service payment for this year is just over $8 million.

    While the county is attacking its debt, officials in Hamilton are issuing more in the name economic development, according to Finance Director Tom Vanderhorst.

    “We’re going in the opposite direction, we’re borrowing more money,” Vanderhorst said. “I think the reason being is that our primary revenue source from the general fund perspective is income tax. Those declined in 2008, so we’ve been borrowing more money and using a lot of it for economic development and trying to attract businesses.”

    Tyler Roark, the city’s budget analyst, said the largest recent debt increase was a $9.5 million loan in 2013 to pay for a variety of capital improvements, including the Artspace building and contributions to the CORE Fund. The city’s 2013 Comprehensive Annual Financial Report indicated economic development activity brought in 608 new jobs, retained 408 existing jobs and added $30.2 million in new payroll.

    Roark said the city will also significantly reduce its total debt later this year.

    “The Greenup Hydroelectric Plant debt will be retired using the proceeds from the 48.6 percent interest sale of the Greenup Hydroelectric Plant to AMP Ohio,” Roark said. “Approximately $106 million in outstanding debt for Greenup will be retired and another $4 million in electric bond anticipation notes will also be retired in 2015.”

    In 2009, West Chester Twp.’s outstanding debt was almost $75 million; it is now under $52 million. But 91 percent of that number is backed by tax increment financing, not general fund dollars.

    Finance Director Ken Keim said the township has five TIFs that have debt issued and half of the debt was issued for Union Centre Boulevard and related projects along that corridor. That TIF expires in 2021, so “theoretically” if no new debt is issued, the township’s debt will be cut almost in half.

    When to pay cash or issue debt obviously depends on how much money is in the checkbook, but Middletown’s Finance Director Michelle Greis said other factors also filter into the equation when you are issuing new debt or refinancing old obligations. The city’s debt stands at $36.5 million, and she said its costs an estimated 3 percent of the amount borrowed to issue or refinance debt. It would cost about $150,000 to issue or refinance a $5 million bond.

    “Any time you issue debt there are fees. You pay a bond counsel, you pay an underwriter, you have to do a cost benefit analysis of the fees associated with doing a debt issuance, versus our savings over the term,” she said. “Is it going to be worth it?”

    Governmental bodies are limited to borrowing up to 10 mills without voter approval. And in Oxford, City Manager Doug Elliott said you also have to be mindful of how much you can afford in debt payments, because once set they don’t budge unless you refinance. Considering who should foot the bill is also part of debt issuance decision-making process.

    “The disadvantage of paying as you go is that if you have an asset that you pay for now, that has a life span of 20 years, you’re hitting the taxpayers now with that cost, rather than paying for it each year as you use that asset,” he said.

    He said a new $4 million municipal pool the city is considering building in a few years is an example of an asset you would want to pay for with bonds, because residents for many years to come will use it and should pay for it, not just people living there now.

Fairfield is one community that is almost completely built out, so the days of issuing debt to accommodate development is on the downturn. Finance Director Mary Hopton said she has refinanced every bit of the $28.3 million worth of debt she could, to get a lower interest rate. There are restrictions on when government bonds can be refinanced.

    “We have some areas that are adjacent to Fairfield Twp. and West Chester Twp. that are more commercial that still could be developed, that might require some additional infrastructure but nothing major,” she said. “As far as residential housing, we’re pretty much built out. There are some spots, but it’s not like you are going to have a 500-unit development like in Liberty or West Chester. We’re past that point, our boom was in the ’70s and ’80s primarily.”

As Hopton said, Liberty Twp. is really at the doorstep of big development as its $9.7 million outstanding debt demonstrates. Up until recently, Trustee   Christine Matacic used to describe her home as a bedroom community, but now with cranes and bulldozers crawling all over the $350 million Liberty Center project at Ohio 129 and Interstate 75, it seems anything but.

    The township partnered with the county, and the Liberty Community Authority was formed to handle the mega deal. The port authority sold $37 million worth of revenue bonds in November on behalf of the partners to pay for infrastructure. The project, which includes major retailers like Dillards and Dick’s Sporting Goods, restaurants and a movie theater, is in a TIF so the bonds will be repaid through that vehicle.

    “As with anything else, when you are in a growth mode there are certain projects you need to get done,” Matacic said. “We’ve been very fortunate that we partner with other people and partner with our developers and others, to make sure that we minimize that debt when we do have to go out.”

Brossart said revenue bonds are different from the general obligation bonds the jurisdictions have reported for this story, and thus are not included in the debt totals.

    “General obligation bonds issued by a community pledge the full faith and credit of the issuing municipality. This financing method allows the community to access the lowest possible borrowing rates,” Brossart said. “General obligation bonds can be repaid by revenue sources other than the general fund of that community, for example, tax increment revenues, water revenues or sewer revenues. Revenue bonds legally obligate and are repaid only by the specific revenue sources identified in the financing.”