County Commission And Jail Committee Present Financial Report
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The Shelby County Commissioners have engaged the firm L.J. Hart & Company based in St. Louis, Missouri to provide Municipal Bond Underwriting services to the County for its proposed new jail facility. The following paragraphs offer a general explanation of the form the financing is likely to take and reflects the knowledge of L.J. Hart & Company.
One of the first decisions the Commission and Jail Committee needed to make was to identify the revenue source to produce enough funding to cover the construction costs, architectural and other expenses associated with the new jail assuming an all in expense of approximately $7,500,000. It was quickly determined that a General Obligation Bond issue supported by an increase in property taxes throughout the County was not a good option. L.J. Hart & Company suggested the implementation of two County ½ Cent Sales Taxes, each requiring a simple majority vote for approval, to support a lease financing. This idea represented the best plan partly because visitors making purchases in the County can share some of the expense. An early estimate of the portion the two ½ Cent sales taxes likely to be paid by visitors is about 40%, thereby leaving the other 60% to be paid by Shelby County residents. The theory behind these projections is to be more fully explained in the informational video by representatives of L.J. Hart & Company. The County Commissioners have voted unanimously to place the two ½ Cent sales taxes on the ballot for the April 4, 2023, election.
Based upon a conservative estimate of interest rates ranging from 4.00% to 4.75% over twenty years, the County, to be safe, needs to receive revenues from the two ½ Cent sales taxes in excess of approximately $580,000 per year. An additional $90,000 of revenue from the Use Tax collections is also anticipated. When combining these collections, a total of $670,000 becomes available ($580,000 + $90,000 = $670,000) to cover the expected annual principal and interest payments of about $625,000 by 1.07 times ($670,000 / $625,000 = 1.07 times). The final projected coverage ratio is necessary for the County to achieve a good rating on the financing thus reducing the interest expense and increasing the overall marketability of the lease certificates. L.J. Hart & Company is establishing the financing model based on assuming zero percent future growth in projected revenue from the two ½ Cent sales taxes. Another factor is the intention to place a five year optional redemption (call) feature at no penalty on the lease financing. This will enable the County to prepay the certificates and/or to refund them to lower interest rates in the event future interest rates make it economically feasible.
The interest paid by the County is to be exempt from Federal and State of Missouri income taxes. L.J. Hart & Company is committed to making the certificates available to local financial institutions and individuals before releasing them to investors from outside the local area. The certificates will be issued in $5,000 denominations. In conclusion, Mr. Hart remarked that the financing structure is a conservative estimate of interest rates and future sales tax collections. Mr. Hart noted that it is ideal to have firm prices for the construction costs locked in before recommending that the County proceed with the actual funding of the project. “This plan accommodates some future inflation in construction costs and helps prevent the County from becoming involved in a fiscally burdensome financing obligation in the event actual bids exceed architectural estimates by too great of a margin,” Mr. Hart commented. This means that the actual financing is not likely to occur until late calendar year 2023 or early 2024 whenever a firm cost number becomes available.