Haywood County commissioners made the right call on jail financing according to County Manager Bryant Morehead, and will proceed with a conventional loan after no opposition was heard during a public hearing held on Feb. 20.
“We had asked in our RFP if the financing — the interest rates — could be held firm for a potential closing in mid-April,” said Carson Wiley, a public finance analyst from Davenport and Company, the county’s financial advisor. “Only one bank, Truist Bank, offered rates that were held firm through that mid-April closing, so through discussions with county staff we decided it would be best to go with the Truist option as it was held firm and not subject to interest rate movement.”
Last month, another representative from Davenport told commissioners during a meeting that of more than 50 financial institutions invited to offer terms for a 15- or 20-year loan for the county’s jail expansion, only five responded. Of those, only Truist would hold the rate, 3.71% over 20 years, while the county deliberated on the other proposals and a possible bond issue.
The county’s demand has already paid off, says Morehead.
“What Mr. Wiley said was, since we opened bids at our 3.71% interest rate, the Federal Reserve has raised rates and they’ve signaled that they would raise again before we close, so I think going with the Truist 20-year looked like a really good idea a couple of weeks ago, and now it’s even more favorable to the county, so I was glad that we got that rate locked in.”
During project planning, the county had budgeted for a 5% interest rate, and the 3.71% rate comes in well under that. Since Davenport received the RFPs with the locked-in rate in late January, the Fed has already raised rates by 40 basis points, or .4%.
The current project cost is pegged at $21.5 million, although the true number won’t be known for a few more weeks, according to Morehead. It isn’t expected to differ greatly from that estimate.
The firm selected to design the project, Moseley Architects, has what Morehead called “unparalleled” experience in the field and has designed more jails in North Carolina than anyone else in recent years. That experience translates to familiarity with general statutes regarding jail operations and standards, but also to strict budgetary controls.
“The other thing that I really liked was that three steps along the way, they have a price estimator to come through and make sure we’re tracking on budget,” Morehead said. “So the last one was done about 30 days ago, and it’s $21.595 million. We’re tracking on the number we’ve targeted since this started.”
The Truist loan terms are based on borrowing $21.8 million. Debt service through 2043 will top $30.2 million and create an ad valorem tax impact of 1.44 cents on top of the current rate of 53.5 cents per $100 in assessed property value.
Once financing is secured, probably in the coming weeks, the county will receive bids from prospective construction companies. It is an uncertain time to be bidding such a large project, Morehead said, but he’s hopeful bids will come in around that targeted price.
Now, commissioners will have to figure out how to ameliorate, or incorporate, the debt service into future budgets. As the county enters budgeting season, commissioners can simply add the total tax impact to the property tax rate, or seek cuts in other areas to lessen the impact of the borrowing.
Over the next few years, the county expects to pay off other long-term debts, freeing up revenues currently appropriated for that purpose.