The Star Beacon; Ashtabula, Ohio

February 27, 2013

Ashtabula County looks to refinance most of its debt

Lodge loan can’t be included this time around

By CARL E. FEATHER - cfeather@starbeacon.com
Star Beacon

JEFFERSON — Commissioners this spring will try to do what many consumers are doing: reduce the amount of interest they pay on debt by refinancing to a lower rate.

On Tuesday the board met with Columbus attorney Stephen P. Grassbaugh to review the county’s debt status and look at ways to refinance outstanding bonds even as the county prepares to take on more debt.

Catalysts for the meeting were the need to borrow money to expand the Job and Family Services building at Donahoe Center and address the impending refinancing of about $6.1 million in lodge debt. The Department of Job and Family Services (JFS) wants to consolidate all of its operations except JobSource in one complex in Ashtabula Township. The cost of that project is pegged at around $3 million and JFS Executive Director wants to put the project out for bid this spring.

Commissioners and County Administrator Janet Discher decided to look at refinancing existing debt as part of the total package. Grassbaugh told commissioners that the county’s debt level can’t exceed certain limits, which are determined by the type of debt and the total of real estate valuations in the county.

“Five years ago, you had a larger debt capacity,” Grassbaugh told the board. “But your assessed values (for real estate) have fallen dramatically.” Also working against the county is the loss of personal property tax revenues over the past seven years, he said.

The board was hoping to put as much of the county’s debt under one new “general obligation” bond, but Grassbaugh said doing so would exceed the county’s statutory debt limit by about $5 million.

The fly in the ointment is the original $14.2 million loan for the Lodge and Conference Center. The bond was sold as a revenue bond — investors were led to believe that the lodge revenues would be used to retire the debt.

In reality, another $7.5 million had to be borrowed as a general obligation bond to furnish the lodge and put in a pool. And the lodge has never made enough profit to pay make the $1 million annual payment on the first loan, which is paid out of the county’s bonded debt fund. Principal reductions on the smaller loan are made from lodge profits (in 2012, $200,000 before debt payments) and contributions from entities funded by the county bed tax. But even that loan is paid as a general obligation.

“When they went (into the bond market) on the lodge, it was projected that it would be paid out of the revenue stream,” Grassbaugh told the board. “They were very optimistic about the revenue stream.”

In hindsight, Grassbaugh and commissioners say the entire world changed after 2002 — interest rates collapsed, people took fewer and less expensive vacations, and all state lodges struggled to turn a profit, let alone one in excess of $1 million annually. Commissioners admit the lodge will never make enough money to cover all operating and debt expenses in a year.

Because revenue performance on the lodge was an enigma, the bonds also were guaranteed by non-tax receipts of the county, such as the local government funds the county receives from the state. Commissioners would like to convert the loan to a general obligation bond, which would come at a lower interest rate, but Grassbaugh said the debt capacity simply does not exist given the county’s real estate assessments.

However, the county can consolidate other debt when it seeks funding for the JFS project. Grassbaugh suggested that the nursing home’s debt be included in the refinancing, along with the $3 million commissioners borrowed to replace roofs and make other repairs to county buildings. The smaller lodge loan could be included, along with some miscellaneous older bonds.

Debt from purchasing the water department can’t be included in the package for a number of legal and economic reasons.

Grassbaugh estimates that the county would have about $7 million in debt capacity remaining if the larger of the two lodge loans is not included in the package. A portion of the loan could be included, but at the danger of leaving the county without any borrowing power.

“You don’t want to use up all debt capacity,” Grassbaugh said. “You always want to have some money there.”

 He said the board needs to act quickly on putting together a package to present to investors; the smaller lodge loan is due in May and Arcaro wants to have the expansion project substantially completed this year.

While the county does not have enough general obligation capacity to convert the lodge loan, Grassbaugh said the commissioners have done an excellent job of managing the county’s debt load during a difficult fiscal period.

“You’re in much better shape than you were when I first starting coming here,” Grassbaugh told Commissioner Daniel Claypool after the meeting.