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County commission reviews funding options for new jail

Staff reporter

The creation of a public building commission may be the county's best option for funding a new jail.

David Arteberry of George K. Baum & Company, presented four bonding options Monday to the commission if the governing body decides to proceed with the project.

If a public building commission was created, the county would enter a lease agreement with the commission for the facility. The establishment of this entity would allow the county to borrow money at an interest rate comparable to a general obligation bond at approximately 4.4 percent over a 20-year period.

The bond would not count toward the county's total debit limit.

Arteberry said jail projects require unique financing. The company he represented had worked on 10 to 15 jail projects during the past 10 years with counties that included Chase, Lyon, Wilson, Butler, Riley, and Saline.

A county's debt limit and ability to issue bonds are based on the county's assessed value. Marion County's assessed value is $97 million so $3 million is the limit. Even with reduced cost estimates, the jail project is estimated at $6-$8 million.

"One misconception is the project will generate new revenue to pay the debt," said Arteberry. "It might be the case but unfortunately the bonding market is conservative."

Bonds cannot be sold based on jail revenue, Arteberry said. Another source of revenue has to be considered for bond repayment.

Bonds also are for the building and equipment, not operations and personnel, said Arteberry.

The options

General obligation bonds are not feasible, said Arteberry, because of the size of the project.

A local option sales tax is probably the most popular but requires special legislation.

Marion County currently has a one percent sales tax. A one-half cent increase could finance a $440,000 per year bond payment; a one-cent increase a $880,000 payment, said Arteberry.

The sales tax would end when the bond was paid.

Arteberry said the draw-back with this option was the legislation considering changing sales tax requirements that could make it more difficult for counties to receive special legislation.

There would be a higher interest rate with this option and bond purchasers will look at a stream of revenue 125-150 percent higher than the bond payment.

Based on the county's current sales tax trends, a one-half cent sales tax increase could fund approximately a $3.5 million project; a one-cent increase could fund a $7 million project. The bond would be paid in 13 years.

Another option would be to use the sales tax option but use a "back stop." Arteberry said sales tax revenue could be used to pay back the bond but if sufficient funds were not available, another revenue source could be used.

With this option, bond purchasers would not require additional revenue.

A one-half cent sales tax increase could fund a $4,750,000 project and be paid off in 18-19 years.

Sales tax money would be placed in a dedicated fund. The county could pay off the bond early but a minimum number of years of paying on the bond would be required.

The commission took the information under advisement.

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