‘Grow and diversify’ key to reclaiming bond mark
This effort will result in over $400,000 in savings in interest between now and 2024, or about $35,000 per year which will be a big help in balancing the budget next year and in years to come.
This refinancing effort is being accomplished despite the BBB rating of our bonds assessed by Fitch Ratings Service.
This lower rating is basically what has caused the delay, although the delay has actually resulted in lower interest rates.
Financial consultant SAMCO arranged for bond insurance at a relatively modest cost of $80,000. (This cost could have been avoided if our rating had been stronger.)
Having such a low bond rating is unacceptable and my goal is to get in back up to AAA. Fitch attributed our low rating to several factors including failure to maintain positive financial reserves, use of cash basis accounting (which makes it difficult to ascertain true financial condition), marginal financial performance, failure to achieve financial goals, elevated unemployment, below average demographics and significantly concentrated tax base.
Thirty-nine percent of our tax base concentrated in two large power plants owned by Luminant.
Positives include low direct debt levels and no capital needs over the near term.
Recent discovery of mineral deposits and subsequent oil and gas drilling has led to modest growth and diversity of the county’s tax base.
We have had solid monthly gains in sales tax revenue beginning in 2011 and that at midyear “management judiciously enhanced its operating revenues through negotiated, ongoing use of excess jail capacity with a neighboring county, which is expected to provide additional net revenue.”
They also recognized that “preserving and building reserves is one of management’s stated goals.”
Fitch notes that “some positive steps have been taken by the county’s relative new management to address the county’s economic and financial challenges.
Fitch believes past actions “such as historical failure to maintain suf f icient levels of reserves, unrealistic revenue budgeting practices that include the use of reserves to balance operational spending, and the conversion from generally accepted accounting practices to cash basis accounting ref lect weak management practices.”
What must be done to get our rating back up?
First we’ve got to build up the general fund reserves and not deplete them ever again, 20 to 30% which means $2 to $3 million at today’s budget level.
The road and bridge (precinct) account reserves are mostly in good shape but we’ve got to get all of them built up.
Second, we’ve got to convert back to accrual based accounting. This will take time and money which we short on right now, both in manpower and in accounting and computer systems. We’re going to shoot for converting back by the end of 2013.
Third, we need to do a better job of budgeting revenues and performing consistently
These are the easier solutions. The other you’ve heard me talk about repeatedly and that’s economic development.
We’ve got to grow and diversify.