As of June 30, Aiken County had $37.8 million in outstanding general obligation bonds. What is this debt for? Is it growing or shrinking? And is it large or small in relative terms?
There are several ways to grasp the magnitude of this sum.
The first and most obvious measurement is its trend in recent years. Total County indebtedness peaked in 2012 at $41.7 million after $28.6 million in general obligation bonds was issued to complete the new Administrative Complex on University Parkway.
Since then, the debt slowly dropped to $39.5 million in June 2014 and to $37.8 million in June 2015. This reduction of $3.9 million – or 9 percent – is a positive development.
This decline is due to the continued payment of principal on existing debt. 2015 saw the liquidation of two items: the 2005 loan agreement to build the Hydrogen Laboratory at the Savannah River Research Campus and the 2006 general obligation bond that built – among other things – the Convocation Center at USC-Aiken.
The remaining debt consists primarily of $28.5 million remaining for the Administrative Complex and $8.6 million for two general obligation bonds issued in 2013 to refinance prior year debt at lower interest rates.
(The general obligation bonds for the administrative complex are practically “interest only” until 2020. This intentionally allows for the liquidation of previous bond issues in the interim without spikes in either total debt service costs or millage rates.)
Another measurement is per capita debt, or the amount owed per person in the county. In 2012 this amounted to $260 per man, woman and child living in Aiken County. Three years later, with the debt a little smaller and the County population a little larger, this totals $229 per person – a drop of $31 per capita or 12 percent.
In comparison, the federal government debt is $18.3 trillion, or $57,034 per citizen. On a per capita basis this is 250 times larger than the Aiken County debt.
The reason for this disparity is that – unlike the federal government – Aiken County’s ability to issue debt is limited by law.
First, debt can be issued for capital projects only. It can’t be used to fund operating expenses.
Since Aiken County must balance its operating budget, County Council frequently says “no” to spending proposals in a manner unheard of on Capitol Hill.
Second, the total amount of debt the County can issue must not exceed the state mandated debt limit of 8 percent of the total assessed value of property in the County.
In 2012, the year of peak indebtedness, the debt limit was $49.2 million. Total indebtedness subject to the limit was $41.7 million minus the $5.1 million in the debt service fund, or $36.6 million. This represented 74 percent of the County’s debt limit, with a legal debt margin of $12.6 million.
Reducing the debt and increasing the margin under the legal debt limit is good financial stewardship and positions the County well in case new borrowing becomes necessary.
What if the Langley Pond Dam repair requires additional debt? Or replacing the Sheriff’s Office becomes a priority? Or a new Courthouse is mandated?
Clearly, keeping a wide margin acts as a hedge against future requirements.
What does this mean for taxpayers? The 2014-2015 millage rate was 69.9 mils, of which approximately 5.0 mils were required for debt service. For an owner occupied home with a $100,000 assessed value, this represents $20 in property taxes. For a $200,000 home, this is $40 in taxes.
But as the debt is whittled away, and as the value of the mil increases, the millage required for debt service will shrink. With principal and interest payments fixed, the costs can be forecasted. And assuming a low 1 percent annual growth in the tax digest, some predictions can be made.
By 2022, when debt service for the Administrative Complex is the remaining item to be paid off, millage for debt service will drop below 3.0 mils. By 2042, the year the Complex is paid off, the millage will be 2.5 mils. This frees up millage to fund other activities – or for tax cuts - and prevents the need for tax increases.
But this analysis is based on one critical assumption: Aiken County issues no more debt between now and 2042. If more debt is issued, then the debt service millage will vary little over time.
Therefore, taxpayers should closely follow discussions regarding County debt. These are real dollars-and-cents issues directly impacting property owners. Taxpayers must be fully engaged whenever new debt – for good or for ill – is contemplated.
Gary Bunker is a former Aiken County Councilman.