The County Commission met on July 26, 2018 for a budget workshop presented by county finance director, Aaron Maynard. In addition to presenting the needs assessments from the different county departments, options for funding the proposed new high school were discussed.
Ashley McAnulty, the county’s financial advisor and bond consultant, presented the different funding options and bond types. Wilson County is rated AA+ which is the second highest rating signaling to creditors that the county has very strong creditworthiness. Only two counties (Williamson and Hamilton) in Tennessee have a higher bond rating.
If the county used Level Debt Service with existing revenues (no new funding from a taxing source) the approximate annual payment on a 22 year bond would be $6.5 million. This would result in the debt service fund in the county budget running out of money in 2021.
If Structured Debt Service is used (the typical structure that Wilson County uses), the payments could start smaller and then increase annually. This would allow the county to pay more back as previous projects are paid off and there is more money to cover the bond for the high school.
If the commission chooses to finance the school with a 22 year bond using structured debt service, the county would need to find $1.5 million in additional revenues. The county commission is NOT considering a property tax increase. The additional revenue could be raised in several different ways:
Sales Tax
Based on current sales tax averages, if the sales tax was increased by 1/2 cent (going from 9.25% to the state maximum of 9.75%) the county would raise approximately $6,097,058 million per year. An increase of 1/2 cent would mean you would pay an additional 5 cents on a $10 purchase.
This option would require a referendum and the citizens of Wilson County would have to approve the increase. Just for comparison, property tax would have to be raised 14.98 cents to generate the same amount of revenue. However, to be clear – a Property tax increase is NOT being considered to fund the high school.
Wheel Tax
The current wheel tax is $25 a year and is paid annually when a citizen pays their annual vehicle registration. If the wheel tax was increased to $50 then the $1.5 million needed would be generated. This would require a 2/3 vote by the county commission (17 votes).
Adequate Facilities Tax
When a new home is built in Wilson County, the builder pays a $3000 one time tax at the time the building permit is issued. This $3000 is paid per residential unit, meaning if an apartment complex is constructed with 100 units, a $3000 tax is paid for each unit. This money is used to fund capital projects such as schools and jails as needed to ensure the county is able to increase infrastructure to serve the growing population. Click here to read the original Private Act. It was increased to the current $3000 in 2005.
If the county commission increases the AFT by $890, it would be able to raise the required $1.5 million annually, with no additional increases. This option would mean that current residents would not see an increase of taxes. The increase would be paid by new residents, essentially passing the financial burden to the new citizens that are creating the need for the new high school.
Transfer from Budget Funds
For every dollar spend on K – 8 education in WCS, 16 cents is given to LSSD. This is required by law and part of the funding structure for Tennessee Special School districts. There is a special purpose tax fund within the Wilson County budget that holds some of the county property taxes and is automatically split to share 16 cents with LSSD. A few pennies of already collected property tax could be transferred from this account to the general debt service account to cover the $1.5 million needed for the high school. LSSD does not offer high school grades, so spending on a high school does not have to be shared.
Combination Options
The county could also take a $1 million dollars from the general fund (estimated fund balance as of June 30, 2018 is $10,384,433) and then get the remaining $500,000 from a $297 increase in adequate facilities tax. Alternatively, if 1.23 cents of growth money (increased revenue from having more people paying taxes – this happens naturally – it is not a tax increase) is moved from the Special Purpose Tax Fund (discussed above) to general debt service, it could also generate the $500,000 that would be needed in this option.
Thoughts?
As you can see, there are several options to fund the new high school, which is desperately needed due to the growing population of the county. According to Wilson County Schools, as of July 12, 2018, there were only 155 seats open at the high school level, all at Watertown high school. The other three high schools are at capacity or above.
Leave a comment and let me know what your thoughts are and what funding option you would like to see the county commission adopt.
Prefer sales tax. Definitely not double my wheel tax.
Questions
1. What is the current balance of the AFT fund? And how are those funds currently being spent? What is the breakdown of the $3000.00 – how it is intended to be allocated (ex: $100 roads, $50 for jail? $500 for schools, etc) If this fee is calculated to provide the community with the necessities required by its growth then why do we not currently have set aside funds to support the increase in educational facilities?
2. What is the projected growth in Wilson County over the next 22 years and how was this calculated?
3. If the housing market has
a downturn how is this being considered into growth and revenue calculations for the next 22 years?
4. What happens to budget calculations and predictions when local governments put a freeze on new construction?
5. With all the fees and permit charges currently being assessed to builders, at what point will builders decide to build elsewhere? And at what point do we make housing cost unaffordable to prospective buyers? Or even our own children upon completion of school?
6. What is the total cost to Wilson county to use “structured debt” to fund the building of the school, including all interest, fees etc. – being completely transparent? Does the total cost of using structured debt outweigh any other alternatives to fund the new school? Is this the most cost effective way to raise funds?
Hi Jody, I want to make sure I answer all your questions correctly, so I am verifying my answers with the County Finance director. It may be a few days, but I will answer everything you asked.
Here are the answers to your questions:
1. There isn’t an actual AFT fund, the revenue is split with 1/3 going to capital projects fund and 2/3 going to the general debt fund. The money is allocated based on need for capital projects (not the operational budget), not by department. Unfortunately, there are no extra funds currently to set aside, that is why the county needs to raise revenue to be able to fund the bond for the high school.
2. In 2010, when the U.S. Census Bureau conducted the last official census, they projected that in 2017 we would have 131,486 residents in Wilson County. Their annual estimate for our county has us now at 137,442. They estimate by 2023, our population will be at 157,930. There is no visible end to the growth in this county.
3. The financial adviser uses a very conservative model to consider if sufficient resources will be available to pay the bonds. It is egg on his face as well as the county’s if he gets too aggressive. The county finance director then review those models that he uses to be sure he concurs with the projections. In addition, the county finance director runs models that assume no growth for twenty years. What if everything just stays like it is and we do not grow as anticipated? We still have sufficient resources to pay the bonds.
4. I’ve been told by both the city of Mt Juliet and the County that as long as project meets the planning requirements, the project has to be approved. They do not have the option to freeze new construction.
5. Builders don’t decide where to build. Homeowners do. As long as people want to own homes here, they will be built. Affordable housing is an issue all over Middle TN and it definitely needs to be addressed, but that is not in the purview of the county commission. However, an additional $1000 on a $250,000 mortgage increases the monthly payment on a 30 yr fixed note (4.5% interest) by five dollars. You can see what additional increases/decreases of AFT would affect a mortgage by using this calculator: https://www.mortgagecalculator.org/
6. Structured debt is by far the best way to build on large projects. Primarily because it allows us to build without raising taxes. You can’t allow it to get out of hand by pushing the principal payments too far down the road, but it does keep us from raising taxes for every major building project in the county. What matters is that you overall debt service payments remain level. As other bonds roll off, payments on newer bonds are accelerated. But overall the payments from year to year remain the same.
The full budget is available at the County Courthouse in the county fiance office if you would like to pick one up. It would show you all the different revenue streams for the county and how the money is spent.
Why is the answer not obvious to increase the adequate facilities tax at the rate Wilson Co is growing? There would be no burden on existing residents. I feel strongly that the special purpose tax fund should be left alone. The existing schools need all available money they can get.
Thanks in advance for letting me share a perspective regarding the AFT (Adequate Facilities Tax or “Impact Fee” as some call it) that is seldom discussed. To think that an AFT only impacts “new” residents is simply not a true statement. This is simply my opinion based upon what I believe to be true…
In general terms… suppose that a family with 4 children in our public school system finally has all four of them graduated and off to some points yonder. I believe the current “cost” of one child in our schools is between $7500 and $8,000 per year per child. Clearly THAT is an “impact” on our system, but since they lived in that home prior to the current AFT being put in place they have paid nothing extra to help offset the cost or “impact” over the years. By the way… I am in this category and by no means am I throwing any stones… simply an observation and simple math.
Now… jump ahead a few years and those same parents who are now empty-nesters and want to down-size from their 4-5 bedroom home into something smaller since the kids are gone. If they go build a new home in which to retire… THEY are hit with the AFT and are having ZERO…yes ZERO impact on the schools.
However… the family that bought their 4-5 bedroom home to start raising THEIR family in pays NOTHING towards the true impact they will be making at a cost of let’s say over $30,000 per year… we are “taxing” the wrong folks as well as “incentivizing” the wrong folks. I fail to understand how reasonably intelligent people cannot see this…wow! We are penalizing the wrong people… we want new homes with taxpayers and wage earners living there and it’s an added plus if they are retirement age or at least have no kids in school anymore…
I truly believe that what it really boils down to is that it is a tax on people who do not yet live there / here and cannot vote. To say that only “new” residents are buying new homes is very misleading at best.
I like a combination. I like the Adequate facilities tax increase because that is the reason for more schools. True, not everyone moving into a new construction home has kids, or is new to the county but it makes more sense than many of the others.
I’m not fully understanding the budget fund transfer option, but I always advocate for some moving around of budgeting rather than simply raising more money/taxes.
I like a combination as well. Sales tax and wheel tax would be my last choice. Sales tax – at least we’d get more of a choice how much of the extra money to spend. Wheel tax would probably cost me, personally, less though per year than an increased sales tax.
All in all, I’d like to hear for how long all of these options (or the top runners) would need to take the money and what will happen with the increased revenue AFTER the 1.5 million is raised.
Thanks SO much for this wonderful overview!! 🙂