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Hubbard County Board reviews debt

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This chart compares Hubbard County's "debt service as a percent age of operating expenditures" and "available operating fund balance as a percentage of revenues" with other Minnesota counties that have an Aa3 rating. The orange line represents the median. The data is based on the Dec. 2017 fiscal year.

PFM Financial Advisors LLC reviewed Hubbard County’s debt obligations with county commissioners at an Aug. 13 work session.

Myron Knutson, Arcelia Detert and Chuck Upcraft from the firm discussed the county’s options.

The county has two general obligation bonds, totaling $6,030,000, paid strictly by the tax levy. One of the bonds was issued in May 2012 to construct the two-story law enforcement center (LEC). It has an interest rate between 2 and 2.25 percent, with $3,380,000 in outstanding principal. It could have been refinanced in Feb. 2019. The original bond size was $5,835,000.

The other bond, dated May 2013, was used for capital improvement projects. Its outstanding principal is $2,650,000 with an interest rate between 2 and 3 percent. It can be be refinanced in Feb. 2021. The initial bond size was $3,580,000.

The nursing home issued a taxable revenue bond in Dec. 2014 to remodel Heritage Living Center, using New Market Tax Credits. Initially for $10,145,000, the outstanding principal is now $9,895,000. The interest rate varies between 1.9 to 4.5 percent. Its call date is Oct. 2024.

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The Hubbard County Housing and Redevelopment Authority (HRA) issued two revenue refunding bonds, one in May 2014 and another in Nov. 2017. The outstanding principal totals $2,640,000, with an interest rate between 2 and 3 percent.

“Those bonds are callable later, in 2022 and 2025, so until then there is no possibility of refinancing or paying them off,” explained Detert.

The county’s bond rating from Moody’s Investors Service, Inc. is currently an “Aa3,” which is a “good rating” and common for most counties in Greater Minnesota, Detert said. The highest rating is an “Aaa,” with 1 being the best investment grade and 3 the lowest.

Detert explained that Hubbard County received the Aa3 “negative outlook” rating due to a weakened “available fund balances as a percentage of operating revenues” and weakened “net cash balance of percentage of operating revenues.”

County commissioner Char Christenson said she would like to see Hubbard County operate on cash only, like Cass County.

Knutson pointed out that Cass County has high-valued lake property and a low population, “so they’ve always, over the years, tended to fund everything with cash because they have a tax base relative to population.”

Knutson bond rates are still low. A refinancing of the 2012 LEC bond could result in $27,799 in savings. “If you were to refund that issue today, despite the fact that rates were really low when you issued the bonds, they are even lower now,” he said, adding the projected savings is not substantial, “so it’s not likely something you’d do on its own, but if you were to issue bonds for some other purpose you might do this in conjunction with that.”

The county could issue bonds, for example, for any courthouse remodeling or replacing the roof on the historic courthouse.

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The nursing home bonds may be refinanced earlier than its call date. The seven-year tax credits will expire at the end of 2021, after which the bonds could be refunded with tax-exempt bonds. Tax-exempt bond rates are “considerably higher,” Knutson noted, but the county could potentially save $740,686, assuming the rates are the same in 2021 as they are today.

“If the board decided it would be in the best interest of the residents to sell the nursing home, based on this, to avoid any penalties we’d have to wait until Feb. 2022?” Christenson asked if they should wait until 2021.

By Minnesota law, Knutson said any proceeds from the sale of the facility would first have to pay off the nursing home bond. “The trigger is the expiration of the New Market Tax Credits,” in late 2021 or early 2022, he said.

Preliminary county budget

If there are no increases in salaries, County Auditor/Treasurer Kay Rave said, the board is currently looking at a 2.5 percent levy increase, based on 2020 budget proposals.

“A $15,750,000 levy is what you might be looking at,” she told commissioners.

Elections in 2020 will cost the county about $290,000. “Part of that is equipment, but most of that is what it’ll cost to have three elections mandated by the government,” Rave said.

Christenson is anticipating attorney fees that will need to come out of the general fund’s reserves, then be replenished. She said it’s her goal to build up the county’s reserves.

Last year, the board had to cut the budget in order to reduce the levy increase from 8.9 percent to 4.9 percent.

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“That’s a daunting task,” Rave said. “I’m excited for the budget decisions that you have. If there’s something you want to do to make sure reserves are adequate, there’s room to work.”

082119.N.PRE.ComparablePopulationNetDebt.jpg
This chart compares Hubbard County's population and "direct net debt per capita" with other Minnesota counties that have an Aa3 rating. The orange line represents the median. The data is based on the Dec. 2017 fiscal year.

Related Topics: GOVERNMENT AND POLITICS
Shannon Geisen is editor of the Park Rapids Enterprise.
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