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County may seek bonds to ease water-sewer debt
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Effingham County commissioners may seek another method to alleviate their water and sewer debt.

Trey Monroe of Merchant Capital outlined how the county could address the debt for its water and sewer system through revenue bonds.

“We’ve been trying to show the county different solutions to their water-sewer debt,” Monroe said.

The county has between $25 million and $26 million of debt with the Georgia Environmental Finance Authority. There are four different loans, with one running until 2025 and the other lasting until 2029.

“For the last several years, we have been discussing our water and sewer debt, and we have been looking for ways to handle that,” said county finance director Joanna Wright.

The county, however, cannot issue the bonds or go to the bond market itself. It either has to set up an intergovernmental agreement with an entity that can, such as the Effingham Industrial Development Authority, or set up its own water-sewer or public utility authority. Setting up that mechanism would have to wait until next year’s General Assembly session, since it requires legislation.

The IDA would serve as a pass-through for bonds, Monroe explained, and the county would not relinquish any control of how it operates the water and sewer system.

Once the bonds are issued, the county would work with a bond trustee and if the county decided to sell or lease part of its system or its capacity, it would not have to go through the IDA to do so.

“They are there as a conduit and a mechanism for the county to access the capital markets,” he said. “There is not going to be a situation where you may want to sell or lease some of the system or capacity and you have to go to the IDA to get permission. That’s not the way this works.”

Monroe said the county could find new sources of revenue for its water-sewer service, restructure its debt or do a combination of both.

“That enterprise is not going to be self-liquidating anytime soon,” Monroe said.

Currently, the water and sewer fund is using fund balance to augment the revenues generated from the special tax district. The fund balance to be used for 2014 is budgeted at $843,000. The county could find new revenues from the special tax district or restructure its debt, Monroe said, or a combination of both.

Should the county decide to go through the bond avenue, it could choose either fixed rate or variable rate bonds.

“Both of those bonds would do a number of things that are different from what you currently have,” Monroe said. “There is no collateral required of county property. In the future you could sell or lease the system or the capacity in it. There are no restrictions or requirements on developers. They would not have to put up a letter of credit, unless you thought it was in your best interest. But it would not be a part of the debt covenant.”

The county’s security for the bonds would be its full faith and credit, and there are no requirements that the county charge higher rates now or in the future.

The county has approximately 1,000 water customers and 600 sewer customers, predominantly residential users. There are about 30 commercial water customers and about 25 commercial sewer users on the county system.

The county installed 167 water meters in 2013. Based on an average of the last five years, the county is projecting the number of users to grow 10 percent.

Effingham County’s interest rate with GEFA is around 3.25 percent, and the interest rate on variable bonds is now less than 1 percent, Monroe noted.

“The drawback is it’s variable, so the rate will change over time,” he said.

A cap on the interest rates, which would limit how high it can go, can be purchased, in case the county is worried the rates will surpass what is being charged now. The variable rates soared past 8 percent during the 2008 financial crisis, Monroe said, but the average since 1992 has been 2.81 percent.

“It’s volatile,” he said. “But over time, it’s been a pretty good solution as far as the costs of interest on local governments.”

An advantage to the variable rate bonds, Monroe added, is the county being able to budget how much money will be moved to the water and sewer fund and how much principal will be paid off at the end of each year.

“The point is to get that debt paid off as fast as possible,” he said. “The faster you can get rid of the debt, the better off the county will be.”