By Kendal Groner
After reviewing potential refinancing options from three financial advisory services, Town of Erwin officials arrived at a consensus to spread out a $108,000 debt service payment, take on up to $1 million in new monies and issue a 1.5 cent property tax increase.
At the beginning of a meeting on Thursday, July 19, City Recorder Glenn Rosenoff said that the budget currently had an 8.04 cent gap. With revenues coming in at approximately $6.57 million, and expenditures at $6.67 million for the 2018-19 fiscal year.
“I don’t see anything that can be cut,” Town of Erwin Mayor Doris Hensley said about the budget.
The board had previously heard from Cumberland Securities, Raymond James, and the Municipal Bond Fund, who in the last budget meeting gave them a snapshot of their variable interest rates.
“Some of our plans have gone anywhere from 3.23 to almost up to a four percent interest rate, so there’s quite a bit of a gap in there,” Rosenoff said.
On the town’s $3.5 million loan for phases two and three of the downtown revitalization projects, the variable interest rates started out at 1.85 percent before jumping around in the high one and low two percent range. As of the end of June, the interest rate was at 2.32 percent.
“There are no plans, thus far that come close to 2.32 … so that tells me it’s not been jumping a whole lot and in some cases it went down,” said Rosenoff.
A public works garage loan in the amount of $1.3 million started at a 1.06 percent interest rate, and hasn’t yet risen to two percent. The last payment made on the loan had an interest rate of 1.41 percent. Rosenoff described the town’s variable interest rates as “healthy,” and noted that they were still saving the town money each month, compared to higher fixed interest rates. He added that because the variable interest rates are reviewed each month, it would be easy to tell if they were getting “out of hand.”
“My opinion, as far as our variable rate loans, I think they have performed very well, and if they didn’t I think the Municipal Bond Fund and others probably within 30 to 45 days would be able to find another loan at a fixed rate if we had to,” Rosenoff said.
In looking at some of the town’s capital outlay notes, the loan for the former Morgan Insulation Property, with a beginning balance of $375,000, has a current balance of $200,000, and is expected to be paid off in 5 years. An $800,000 note for capital projects in 2012 has a current balance of $320,000, and will be paid off in four years. The $1.25 million note for phase one of downtown revitalization has a remaining balance of $657,803, and is expected to expire in seven years.
“One of the suggestions was, if we have to wait on a couple of these loans to mature so we don’t have these payments anymore, then our fund balance is available to take and pay more on the debt service,” Rosenoff said.
He said the only offer on the table to postpone a payment came from the Municipal Bond Fund, which offered a postponement of the $108,000 payment on the $3.5 million note that is due this year and instead spread it out over the course of 11 years. Hensley was at first cautious about spreading out the payment and mentioned that the town could be in “worse shape” down the road compared to this year.
“I don’t think we are in bad shape right now,” she said.
Hensley said she would like to take any extra funds and utilize them to pay off the remaining balance for the Morgan Property.
“Hopefully, that property will be sold in the next 12 to 24 months. … Of course, there’s no interest on that, but the $320,000 left on the capital projects, we could use it for that,” she said.
It was pointed out by Rosenoff that there have been many large projects with “a lot of local money tied up,” such as the Harris Hollow Tunnel Project and the ECD Site Development Grant, both of which will be wrapped up this year and be off the books for next year. Currently, Rosenoff said there are no other projects in the $1,000,000 plus range.
“We have to continue to do these big projects, but there has to be some kind of break to catch up,” said Town of Erwin Alderman Mark Lafever.
Despite the large capital projects over the last several years, Rosenoff reported that the town’s fund balance is $1.4-$1.5 million. In order to balance the budget, Hensley suggested using the $108,000 savings this year from the debt service payment and increasing the tax rate by 3.3 percent.
“I think it’s inevitable,” Lafever said about a tax increase.
To avoid the 3.3 percent tax rate increase, Hensley said with the $108,000 debt service payment, plus a new loan of $1,000,000 with interest payment of $22,587, the town could possibly have a 1.34 cent tax increase instead.
“If we do that, that’s not going to put us ahead so we could be having to increase taxes again next year. We do have a good fund balance. … I’d like to see it build up a little more though. I’m just not comfortable with $1.4 (million),” she said.
Her final suggestion was to opt for a 1.5 cent property tax increase, which town officials were in general agreement on.
“It’s better than a 5 percent or an 8 percent increase next year,” Hensley said about a tax increase.
With the proposed 1.5 percent increase, Rosenoff said the town would have a balanced budget for the 2018-19 fiscal year.