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County seeking to refinance debts

WOODSTOCK – The McHenry County Board is making plans to refinance three of its building debts next month to save money by taking advantage of low interest rates.

But it likely will resist the idea – sure to be floated by some members – to pay off some of the debts through the board’s general fund reserve.

Refinancing the three debts amounting to $6.4 million could save at least $429,000 in debt service, BMO Capital Markets project manager Eric Anderson told board members Thursday evening.

“These current rates, we’re really probing 45-, 50-year lows,” Anderson said.

The county borrowed $5 million in 2003 to convert the county government’s former space into a judicial center, $4.6 million that same year to build out the third floor of the county jail, and about $1.9 million in 2005 to finish the jail. The first is set to be retired in the 2020 levy year; the other two are to be paid off in the 2012 and 2013 levy years.

Contributing to the county’s savings will be its AAA credit rating, Anderson said. He told the board that the county is the smallest in the United States with an AAA rating and all of its debt being paid off through operating funds and not a special bond and interest property tax levy.

The county is paying off the judicial center debt through sales tax revenues, and the jail renovation debts through federal revenues for housing illegal immigrant detainees.

“That is an outstanding accomplishment, one you should be very proud of ... and one you should covet to keep, that’s for sure,” Anderson said.

County Board approval of the refinancing measure may come at the County Board’s next meeting April 3.

Board member John Hammerand, R-Wonder Lake, said he intends to ask at that time to pay off the two smaller debts with the county’s general fund reserve, which ended the 2011 fiscal year with a $47.5 million surplus, or enough to fund more than six months of county operations.

Hammerand also questioned the logic of refinancing two debts that are set to be paid off over the next two years.

“The 10-year bonds make good sense because of the reduction in interest ... but with the shorter terms, I think the cost of reissuing is too great to make it palatable,” Hammerand said Friday.

The size of the surplus has been a sore point for Hammerand and other board members, who cite not only frustrated and struggling taxpayers, but also their own rules, which call for having maximum of five months’ reserve.

But Finance and Audit Committee Chairman Scott Breeden, R-Lakewood, said that spending down the reserve is a bad idea while state government is in fiscal turmoil and when it could decide to further delay payments, dip into shared revenues or saddle local governments with more unfunded mandates.

What’s more, he said, having more in reserve will mean more interest revenues when the rates finally start recovering.

“That’s something we all overlook, and we need to think about that,” Breeden said.

Funding day-to-day county operations has reduced the reserve to about $30 million, Associate County Administrator for Finance Ralph Sarbaugh said. Property tax bills will be going out in May, with the first installments replenishing county coffers in June.

The county has a total of 11 separate debt certificates issued, totaling about $61.3 million. Anderson said that 97 percent of that debt is scheduled to be retired over the next 10 years.

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