Managing debt is a key skill for any individual, but that likely goes double when you're trying to balance a budget of millions of dollars like city and county governments do each year.
For Harvey County, a conservative approach has been key to maintaining a comfortable position when it comes to debt management. Currently, the county has an outstanding balance of $11,499,306 in bonded indebtedness for projects ranging from the Kansas Logistics Park to renovations at the Newton City/County Airport to implementation of the new 800 MHZ radio system.
Of those bonds, $3,325,000 of that outstanding balance comes from general obligation bonds and $7,867,000 is tied to Public Building Commission Revenue bonds (with the remainder directed towards a lease purchase). While there is no limit to the PBC bond debt the county can issue, there are statutes restricting how much general obligation bond debt can be taken on by the county. Specifically, that number is limited to three percent of the equalized assessed tangible valuation of the county ($333,136,630 as of Jan. 1, 2018).
The county commission went a step beyond that, though, in the debt policy it created in 2013 — imposing an even steeper limit on its general obligation bond debt of 82.5 percent of that portion of the allotted assessed valuation.
"We've actually capped ourselves at issuing a lower amount than what we're statutorily allowed to issue," said County Administrator Anthony Swartzendruber.
Currently, the county has a self-imposed cap of $8,245,132 in general obligation bond debt — and falls well below that threshold.
Ultimately, that debt policy sets the limit on what the county can issue in bond debt, though Swartzendruber stated if the county has the cash on hand for a project (i.e. renovations to the law enforcement center) that will always be the priority funding source.
Another factor taken into account when the county issues bonds is the taxpayer equity of the project. Depending on the lifespan of the renovations, the county has to consider whether it makes sense to pay for that project up front or spread the responsibility over the duration those improvements would be in effect.
"If we have to go build a 50 million dollar bridge," Swartzendruber said, "and we know that bridge is gonna be here for probably 50 years, does it make more sense to make the taxpayers who are using it today pay for that bridge or to spread that tax burden out over 15 to 20 years so that the people who are actually utilizing the bridge pay for it over time?"
"That's where the strategic planning element of all this comes together," said Director of Finance Dan Bronson.
Equity of payments in general is another goal of the county, as Swartzendruber pointed out that it has arranged level repayment of its current bond debt with the majority of the bonds. The payment schedule from 2018 through 2025 looks nearly identical (around $1 million annually) before dropping off slightly the next four years and taking a big dip in 2030, with payments on only two bonds scheduled at that point.
HC bond payment schedule
When it comes to balancing the budget, bond payments are not traditionally a major factor — only making up about four percent of total expenditures — but when they do have some weight on the process is when debt is coming off the payroll and the county is considering major projects.
"In the event that you don't have cash or the budget authority to pay everything up front, it gives you the opportunity just like you have with a home mortgage or a car to pay for it over time as long as you use good principles when you're thinking about over what length of time you're gonna pay for it," Swartzendruber said. "Typically, it's going to be a larger scale capital project if you're going to issue bonds. Probably the smallest thing that we've issued them for since I've been here is we issued $300,000 for runway improvements out at the airport for our portion of it when we replaced the 7,000 foot north/south runway at the airport."
Most (but not all) of the revenue funding payment of the bonds comes from citizen taxes — part of the reason the question of equity holds so much weight in the bonding process — though Swartzendruber noted there are some special assessments from one of the bond projects that generates some revenue to partially fund itself.
Traditionally, bonds are used for capital improvement projects, with the one exception being the KLP (more of an economic development situation). Current potential bond projects under consideration, specifically, focus mostly on road and bridge improvements in the county. During this year's budget process, discussion of a potential bond to address improvements to Hesston Road was brought up, while Swartzendruber also noted there has been consideration given to bonding out some bridge renovations — given the good market for such work at present.
Having some room to take on more bond debt could help the county if it pursues either of those projects in the near future, but Swartzendruber said there are policies the county would need to take into account outside of its own guidelines if it does that — mainly pertaining to the tax lid.
"With the tax lid in place, if we need to make a public building improvement, we would need to either issue general obligation bonds and take that to a vote if it was over $300,000 or we would need to issue PBC bonds and either cut expenditures somewhere else to make that payment or, if issuing those bonds drove us to need more revenue outside of what the tax lid allows, we would have to do a tax lid election," Swartzendruber said.
Paying off the bond debt, Swartzendruber noted the county's annual installments are pretty much locked in — and increased payments can only be made once a bond becomes callable (though some are restricted). While funds can be set aside to pay off the entirety of the bond at that point, that would require utilizing reserve funds.
Those reserve funds can also help prevent the county from needing to use bonds — like in the case of the law enforcement center renovations. With that project, the county has enough reserves on hand to fully fund its portion of the project. However, utilizing those funds becomes a balancing act as they can have a significant impact on the ability to utilize bonds in the future.
"Reserve balances, they're important to bond rating agencies. Bond rating agencies are going to want to see your fund balance policy, they're going to want to see your debt policy and they're going to want to see how much cash you actually have on hand," Swartzendruber said. "If you get close to your limit that you've set by policy, it's gonna make them nervous and it could ultimately affect your rating, and if it affects your rating it affects the amount of interest you're paying on the bonds and, in turn, how much it's ultimately going to cost the taxpayers to finance that improvement."
"You really want to show a healthy balance between using reserves on some projects and being cautious when and how you bond things out," Bronson said.
Commissioners also attested to the importance of that credit rating during the 2019 budget process.
Despite the number of factors that have to be weighed before considering taking on a bond, the advantages of that process are clear and reason for their continued usage.
"They're a valuable tool to accomplish certain things," Swartzendruber said. "Utilizing them to replace the 911 system, the 800 MHZ radio system, that was a tremendous benefit to the public — for the safety of our law enforcement officers, for the safety of our firefighters — and this provided us a means to do that, spread the cost over the life of that improvement and also provided a great benefit to not only our public servants, but also the citizens."