Franklin County officials were excited but still skeptical to learn that a portion of the county’s long-term debt can be retired without a costly refinancing.
County commissioners had been considering refinancing two series of certificates of participation, or COPs, those issued in 2005 and those issued in 2007.
Auditor Tammy Vemmer said Thursday she found out the 2005 series, which has reached its first-call date, can be retired sooner than 2030, as forecast in the current repayment schedule.
Vemmer said the county is allowed to pay additional principal at any time, with 60 days advance notice, thereby shortening the term of the note and reducing the amount of interest charged.
Doing so, Vemmer said, would incur only a $150 fee for each additional payment.
“Think of it like a home loan,” said County Clerk Debbie Door. “If you’re simply following the amortization schedule, nothing changes. If you pay a considerable amount down though, it shortens the term of the loan.”
Presiding Commissioner John Griesheimer Friday told The Missourian that paying extra on the 2005 series would be the opposite of what commissioners hoped to accomplish, however.
“After thinking about this and what (Vemmer) came up with, we’re going to have to do more checking,” Griesheimer said. “The devil is in the details.”
Griesheimer said commissioners are considering refinancing as a means to reduce the county’s COP payments now.
Griesheimer and others are feeling the financial pinch to refinance, as the county’s debt service will jump from $2,012,661.06 this year to $2,447,990.04 in 2013.
County Counselor Mark Vincent had told commissioners, Vemmer and other county officials that the county was not able to “pre-pay.”
Vincent said he was mistaken about the eligibility of the 2005 series and its first-call date.
Following Thursday’s working session, several citizens were critical of Vincent.
One man, who asked to not be identified, said Vincent was “dead wrong” in assuming the county couldn’t pay additional principal on the COPs.
The man was critical of Vincent’s advice, saying the attorney is obligated to “get it right.”
He said Vemmer went the extra mile in finding out about the pre-pay eligibility of the COPs.
Eric Reichert, Villa Ridge, a regular attendee at commission meetings and working sessions, said prepayment without refinancing is “the only practical solution for this county.”
Reichert said the county should use small amounts from the reserve fund to essentially double up on the principal payments and pay the COPs a year ahead at a time, reducing the interest charges.
Griesheimer said paying a more sizable amount on a series all at once would have the same impact.
Refinancing a COP series would instead set up a new payment schedule which the county would not be able to pay ahead on, until the new first-call date passed.
Vemmer said the county will still have the option to refinance later, if interest rates remain low.
The 2007 series of COPs can’t be paid in advance until next year, after the series’ first-call date.
Griesheimer said Friday he didn’t see how paying extra on the principal would reduce the yearly payments.
“We’d be reducing the term, but that was the whole idea of refinancing in the first place,” he said.
Court Ruling Cuts Funds
The county likely won’t be making any decision until the end of the current legislative session.
Commissioners are waiting to learn what will happen with a bill that would restore cuts in sales tax revenues caused by a January Missouri Supreme Court ruling.
The ruling said local entities, including the county, would be unable to collect sales taxes on motor vehicle and marine sales purchased from out of state or sold between two private individuals.
House Bill 2100 would change the definition of a retail sale to include vehicles registered in Missouri regardless of where they were purchased from.
“If we can hang loose until the legislative session is over, we’ll know where we stand,” Griesheimer said Thursday.
Commissioners originally looked at options to refinance all three series of COPs, the 2005, 2007 and 2008 series, but would have had to hold funds in escrow until the first call date for the 2008 series in 2014 in order to be able to refinance.
They then narrowed down their discussion to the 2005 and 2007 series, which indebted the county for $6,910,000 and $18,450,000, plus interest, respectively.
The 2008 series was issued for $13,885,000, including about $1.17 million put aside as a reserve fund to back that specific COP series.
Commissioners have been discussing refinancing options with Edward Jones, but refinancing would cost the county $642,000 in fees, Vemmer said.
Refinancing on the 2005 and 2007 series could save the county anywhere from $1 to $2.5 million however, depending on how much reserve money is used and the length of the refinanced term.
The county has been considering trying to retire the 2005 series in 10 years — eight years sooner than originally planned — and the 2007 series in 20 years, five years early.
In order to do so, the county could use some of its roughly $8 million reserve currently in a fund designed to pay for building projects to pay down a portion of the principal.
That reserve was larger in years past, but as the yearly payments on the COPs increases, the county has had to dip into the reserve to meet its debt obligations.
If the county is unable to make payments on the COPs, banks holding the bonds could take ownership of the county’s buildings.
“Based on the new developments, I would be hard-pressed to put down more than $2 million,” Griesheimer said Thursday, reiterating his stance from the previous week.
“I still think if we can pay off the 2005 series in 10 years, it will make it considerably easier to make payments on the rest of them (after that),” he said.
Refinancing the COPs also could shorten the term to 10 years.
Commissioner Terry Wilson said Vemmer’s option and refinancing both have to be considered and investigated.
“We have to look at the options and talk. We have time, and we shouldn’t do anything until we know what the Legislature is going to do anyway,” Wilson said.
“It sounds too good to be true, and that’s why we need to talk about it,” he said.