Debt and the Devil to Pay

Last year, like many Americans, Yavapai County went into debt. This year, like many Americans, some Yavapai County officials wish they hadn't.

The first meeting of the Board of Supervisors of 2009 faced the debt dilemma head-on and at least one supervisor seemed to have borrower's remorse.

Asking the question of the day, perhaps the year, District 2 supervisor Tom Thurman after hearing about current budget conditions and planned capital improvement projects inquired "Where are we going to get the money to do all this?"

Some of the money is to come from the county's half cent sales tax, of which county administrator Julie Ayers gave a brief history. The tax, said Ayers, was implemented, as allowed by state statute, in 1994 and was originally allocated for roads in what is called the Regional Road Fund and to the General Fund to reduce the property tax rate. In 2005, when the same board members sitting now were also in their respective positions, the Board passed a resolution that the funds "be allocated at the discretion of the Board of Supervisors," said Ayers. "So basically this is revenue that the Board of Supervisors may allocate to wherever they would like," she added.

60% of the sales tax was allocated for the Regional Roads Fund and 40% was allocated specifically to the Capital Improvements Program. However, in looking at fiscal 2008-09 "due to the severity of the financial shortfall to the general fund and the resulting impact to county services, a full or partial shift of the half cent sales tax on a either a temporary or permanent basis I believe is part of our discussion today," said Ayers.

The second answer to supervisor Thurman's question was to be $50 million the county borrowed in April of 2008 in the form of a lease-purchase agreement to build a complex of county buildings at the Prescott Lakes Parkway site it owns. But the cost of the loan may have made it a liability, rather than an asset. Weekly interest costs for the loan are $26,563 and with principal payments would be upwards of $42,000 a week.

What to do? Continue with the ambitious capital improvements program and carry the loan, but in order to meet the $13.3 million budget shortfall begin laying off county employees and closing existing county facilities?

Just prior to the afternoon budget discussions the supervisors voted to close the Gurley Street jail and begin transporting all prisoners to the jail in the Verde Valley. In a separate "balance-the-budget" proposal presented by district 1 supervisor Carol Springer she advocated closing the development services department in the Verde Valley.

Four alternate proposals were presented in the supporting document for the meeting agenda on the county web site for the capital improvements plan discussion, but the one presented to the public at the meeting actually showed six alternatives. Thurman apologized saying "unfortunately the agenda that was advertised did not have all of the different proposals in it." Three of the six alternates included returning the $50 million loan, which would mean a $500,000 penalty and according to supervisor Springer could not be done until May at the earliest. Springer strongly favored keeping the $50 million and going forward with the capital improvement program. Her budget proposal, she said, would allow them to cut spending enough to go forward with the building program.

But supervisor Thurman was not convinced. "I have a real problem building $70 million worth of buildings and not doing community cleanups," said Thurman. "I have a hard time building buildings and laying off folks."

Countered Springer, "I believe what taxpayers expect is that when our revenues decline that we cut expenditures, that we cut spending. Not that we take from other sources and borrow from other places in order to shore up unrealistic budget spending." She added that "hard decisions" needed to be made and that probably included laying people off.

Springer added that all economies are cyclical and that this has been "one of the most precipitous" downturns in recent memory, but she was optimistic about a turnaround. "If you recall," said Springer, "over the past four or five years it was also one of the swiftest increases, and during that time we spent the money. Nobody complained when we spent the money. And we spent the money on the departments we felt it was most needed."

But Supervisor Davis was not convinced either. "We just voted to close the Prescott jail," said Davis and reminded Springer of her proposal to close down the development services department in the Verde Valley. "How can we justify that we need to build more buildings when we're shutting down operations and closing buildings down?"

On February 19 of 2008 the Board of Supervisors, then, as now, consisting of supervisors Thurman, Davis and Springer, with Springer acting as chairman for the year, voted two to one (Davis said no) to borrow $50 million.

In stating his objections supervisor Davis said "I don't agree with only using $7 million for capital improvements. I don't agree with keeping $18 million in reserve instead of dealing with our budget problems. And I don't agree with borrowing $50 million and obligating the county to a high loan payment."

A single public hearing was held in Cottonwood on March 17 at which all public comment, both written and spoken, was opposed, and the lease-purchase option was approved in a two-to-zero vote on April 7th (supervisor Davis was absent).

No action was taken on any of the six alternate proposals for the capital improvements plan at Monday's meeting, and likewise no decision was made on whether or not to return the $50 million loan. In the meantime, architects and engineers hired to work on the capital improvements projects at Prescott Lakes Parkway and elsewhere still need to be paid. We can most likely expect to hear more at the next Board of Supervisor's meeting on January 19 in Cottonwood.

To hear the audio file from the January 5th meeting (only if you have Internet Explorer though, folks...it won't work if you have Firefox or are using Mac's Safari -- we tested them) you can click on this link.

[Musings: What is the total cost of the debt since it's inception so far and what would it be if we repaid the money at the earliest possible date allowed? If we do not return the loan money, exactly which projects can we afford to go forward with? Since the Board and Sheriff Waugh agreed an increase in the county sales tax to move the Jail District out of the red and accumulate the funds to build a new jail in the Prescott area would be sought again as soon as possible, what is the contingency plan if it doesn't succeed a second time? Did the Board jump into the lease-purchase agreement too quickly, underestimating the gathering clouds over the economy in the first quarter of 2008 and do so without carefully considering all the "what if" scenarios?]