Blount County commissioners on May 20 almost halted construction of the Prospect School after they learned the project was $1.5 million in the red and financing hadn’t been established.
The discussion that highlighted the last 45 minutes of the meeting dealt with the fact no financing was in place although construction had been allowed to proceed. The commissioners questioned finance director Steve Jennings extensively about the situation, and he explained that the county could either stop building, get a bond or obtain a federal funding.
Commissioners in November approved the project to build the elementary school in Seymour. During the May 27 meeting, commissioner John Keeble made a motion to appropriate $7 million out of a debt service fund to pay contractors until either the county obtained a bond at a fixed interest or obtained either federal stimulus money as Maryville did in 2009 to restart construction of Coulter Grove Intermediate School.
Maryville received a $20 million Qualified School Construction Bond made possible by the American Recovery and Reinvestment Act. The bonds were administered through the Tennessee State School Board Association and allowed municipalities to apply for between $2 million and $20 million in funds at zero to low interest rates.
At the same meeting on May 20, commissioner Scott Helton made the motion that the county appropriate the $7 million from debt service fund, pay $1.5 million to the contractors on site now and then shut down construction until funding can be obtained.
Jennings, who took over from former finance director Dave Bennett in February, said waiting to obtain funding and using funds from the county trustee was to give the county an opportunity to obtain federal stimulus funds. May 20 was the first day to apply for the Qualified School Construction Bonds.
Helton took issue with the fact the commission never obtained funding for the project before approving it.
“I can not remember a school construction project beginning before there was funding,” Helton said. “That brings me to this part. I understand we have already developed $1.5 million in debt due to this project. The intention of this resolution is to appropriate $7 million to be paid out as needed for construction of the school. The federal loan we will apply for in August will not be issued until September,” he said. “My concern is there are a lot of counties applying for a lot of projects, and there is only so much money. Their best estimate is 50 percent of projects will be denied. I’d like to issue bonds for $1.5 million and then stop construction of the school until we get appropriate funding to fund the school.”
Commissioner Ron French said if the commission halted the project, there could be penalties. “My question is this, if we do this, and we postpone construction, do we not already have signed contracts with contractors doing work? If we do that will we not be penalized if we don’t honor these contracts?” he said. “When we voted to fund this school, we did it in good faith we would obtain financing for it. We need to stick with what decided to do several months ago.”
Jennings said applying for the federal funds is an opportunity the commission should consider. “You can go from $2 million to $20 million. For new schools, there’s a rating system. You can also ask for money retrospect for purchase of property, and it isn’t subject to split,” he said. “The county would be very remise in not trying to go after that federal funding.”
The finance director said if the commission didn’t want to wait, it could go after a traditional, fixed rate bond. “But it is subject to split dollars for funding $13 million, you have get $21 million in loans to split with Alcoa and Maryville,” he said. The split occurs because the Alcoa and Maryville residents are also county taxpayers.
Jennings said the federal stimulus application must be in Nashville on June 16.
The finance director said one of the first things he did when he took the job was go to Prospect School and see site work that was being done. “I was not party to decisions to begin construction. I was given the task to get appropriate financing for the school under construction that had been approved,” he said.
Jennings said his plan was to use $7 million of the $13 million in debt service to pay contractors and then in August go to bond market and get a fixed rate loan for the amount not covered by any federal funds the county could obtain. “At that point in August we’ll go to market to get the full amount and pay back the debt service fund. I think it could be done by the end of the third quarter,” he said. “I’m trying to fund the school at the lowest possible cost to taxpayers.”
At this point, commissioner Mike Walker asked how the county got $1.5 million into debt on construction. “Did I understand we spent $1.5 million?” he said. “Did this commission approve any expenditure?”
The finance director said the County Trustee dispensed the money. “The trustee said he understood situation,” Jennings said to which Walker said, “The $1.5 million is the least of your worries.”
The finance director said he was just trying to optimize the cost of financing by getting as much federal stimulus money as the county get. “We need this inter-fund bond to get it,” he said of appropriating the $7 million from the debt service fund. “It never should have been done without getting funding. It never makes sense to go into the red for construction.”
Jennings said the cost of the project is $12.75 million. “No one went to market and borrowed the money even though it was resolved to do so, and the school contract happened before that occurred,” he said. “When I came on board, that is when I started this stop-gap measure.”
Jennings said it would be a matter of the county loaning itself the $7 million, and it wouldn’t affect the county’s debt strategy. “This is three to four months out of one pocket into another and then you put it back and it does not restrict you,” he said. The finance director said the federal stimulus money was available in 2009. “In hind sight I don’t understand why we didn’t apply for it,” Jennings said, to which Walker replied, “We missed the deadline.”
Walker told Helton he couldn’t support the motion to halt construction of the school. “We approved construction, and it got us $1.5 million in the hole. It is not the first project we approved without funding. That is the price of a lesson,” he said. “I would suggest in my humble opinion we need to move forward and at end of this we’ll either pay for it of Q-scab or traditional fixed rate bonds. One is going to be there. I think stopping construction at this point in time is a negative.”
Helton’s amendment failed for lack of a majority and commissioners then passed Keeble’s motion to move $7 million out of debt service fund to pay contractors until either federal funding or bond financing can be obtained. Voting against the measure were commissioners Tonya Burchfield, Holden Lail, Graham and Helton.