Agenda - 03-01-1994-IX-B - Laserfiche WebLink

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2 * Savings on interest payments. While this is by no means a certainty, indications (such as the Federal Reserve Board' s recent action to raise short-term interest rates) are that interest rates will rise somewhat in the year ahead. If that proves true, it is likely that the County could achieve savings in debt service costs by selling all bonds in June 1994 , rather than holding some back for sale in Spring 1995 when interest rates may be higher. By way of example, if interest rates are just one half percentage point higher next year, the County could save roughly three quarters of a million dollars over the life of the bonds if all bonds were sold in June 1994 rather than following the original plan. Of course, if the difference in interest rates between Spring 1994 and Spring 1995 is larger or smaller than one half percent, the County' s potential savings would be more or less significant than the $750,000 figure cited here. * Eligibility for "bank qualification" in calendar year 1995. Under Internal Revenue Service regulations, a local government can make itself eligible for tax-exempt interest rates on debt instruments obtained from lending institutions in any calendar year in which its total debt issued is less than $10 million. If the County sells all remaining bonds in 1994, the County should be in a position to be "bank qualified" in 1995. On the other hand, should the County sell $15.5 million in late Spring 1994 and $14.5 million in Spring 1995, the County could not be "bank qualified" until 1996. Bank qualification in 1995 could prove helpful as an alternative approach for directly funding the construction of the new CHCCS elementary school. This financing concept of "private placement" is a realistic option, based on conversations between representatives of several banks and the County Finance Director. If the County can be "bank qualified" in 1995, the County can obtain proposals for both Certificate of Participation (COP) and private placement financing of the elementary school, and select the option that is more advantageous (assuming, in either case, that the General Assembly passes proposed local legislation authorizing the County to finance school construction under NCGS 160A-20) . If the County pursues the June 1994 bond sale of $30 million, the tax rate impact for 1994-95 is estimated to range from 1.67 cents to 1.83 cents, and the 1995-96 tax rate impact is estimated to range from an additional 4.75 cents to 4.9 cents. Thus, the peak additional debt impact from the sale of the remaining bonds might total roughly 6.4 cents to 6.7 cents. Combined with the 1993-94 tax rate impact of about 5 cents for debt service on the first installment of $22 million, this would lead to a total peak tax rate impact from 1992 school bonds of 11.4 cents to 11.7 cents. This compares favorably with the 15 cent tax rate impact that was originally projected in 1991 and cited in the bond education literature. If the County pursues the original bond sale plan, with a May 1994 sale of $15.5 million, the tax rate impact for 1994-95 is estimated to range from 3.45 cents to 3.62 cents. Sale of the remaining $14 .5 million in May 1995 is estimated to create a 1995-96 tax rate impact of an additional 3. 13 cents to 3.28 cents. Under this option, the peak additional debt impact from the sale of the remaining bonds would probably range from 6.6 cents to 6.9 cents.