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’slargest communities

By Denise G. Callahan

Staff Writer

BUTLER COUNTY — 

    The largest jurisdictions in Butler Countyhave varying levels of debt, and those numbers are driven by a number ofvariables, including growth, services offered, policies and bank balances, toname a few.

    Debt levels run the gamut in the countyfrom a high of $267 million in Hamilton wherethey 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 thewhole story, Hamilton’s numbers look huge but only $45.9 million is paid forwith taxpayer money, the rest is paid by the city’s water, sewer, gas andelectric customers and other means. Hamilton isthe only city in Ohiothat operates all four major utilities.

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

    The principal on the 10 bonds currentlystands at $10 million and by refinancing at a lower interest rate and shavingfive years off the length of the loan, the county will save $1.2 million. AndyBrossart, the county’s financial consultant, said the commissioners back thenhad two choices, either raise the sales tax which is tied with three othercounties for the lowest in the state at 6.5 percent, or issue debt.

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

    Brossart said when the county issued the2006 bond series they probably should have paid cash for some things that hadprice tags under $1 million. Administrator Charlie Young said there are timeswhen issuing debt is appropriate but now they are in pay down mode.

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

    Finance Director Tawana Keels said annualdebt 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 Hamiltonare issuing more in the name economic development, according to FinanceDirector Tom Vanderhorst.

    “We’re going in the opposite direction,we’re borrowing more money,” Vanderhorst said. “I think the reason being isthat our primary revenue source from the general fund perspective is incometax. Those declined in 2008, so we’ve been borrowing more money and using a lotof 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 payfor a variety of capital improvements, including the Artspace building andcontributions to the CORE Fund. The city’s 2013 Comprehensive Annual FinancialReport 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 significantlyreduce its total debt later this year.

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

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

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

    Whento pay cash or issue debt obviously depends on how much money is in thecheckbook, but Middletown’sFinance Director Michelle Greis said other factors also filter into theequation when you are issuing new debt or refinancing old obligations. Thecity’s debt stands at $36.5 million, and she said its costs an estimated 3percent 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 payan underwriter, you have to do a cost benefit analysis of the fees associatedwith doing a debt issuance, versus our savings over the term,” she said. “Is itgoing to be worth it?”

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

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

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

Fairfield is one community thatis almost completely built out, so the days of issuing debt to accommodatedevelopment is on the downturn. Finance Director Mary Hopton said she hasrefinanced every bit of the $28.3 million worth of debt she could, to get alower interest rate. There are restrictions on when government bonds can berefinanced.

    “We have some areas that are adjacent toFairfield Twp. and West Chester Twp. that are more commercial that still couldbe developed, that might require some additional infrastructure but nothingmajor,” 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-unitdevelopment like in Liberty or West Chester. We’re past that point, our boomwas in the ’70s and ’80s primarily.”

AsHopton 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 homeas a bedroom community, but now with cranes and bulldozers crawling all overthe $350 million Liberty Center project at Ohio 129 and Interstate 75, it seemsanything but.

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

    “As with anything else, when you are in agrowth 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 withour developers and others, to make sure that we minimize that debt when we dohave to go out.”

Brossartsaid revenue bonds are different from the general obligation bonds thejurisdictions have reported for this story, and thus are not included in thedebt totals.

    “General obligation bonds issued by acommunity pledge the full faith and credit of the issuing municipality. Thisfinancing method allows the community to access the lowest possible borrowingrates,” Brossart said. “General obligation bonds can be repaid by revenuesources other than the general fund of that community, for example, taxincrement revenues, water revenues or sewer revenues. Revenue bonds legallyobligate and are repaid only by the specific revenue sources identified in thefinancing.”