Bond debt troubles council County obligations reported growing

October 05, 1993|By James M. Coram | James M. Coram,Staff Writer

The Howard County Council served notice last night that it will not look kindly on spending bond money in fiscal 1995 for pay-as-you-go projects.

"Debt service is going to kill us," said Councilman Charles C. Feaga, R-5th. "My guess is that we're way out in front on debt service" per capita when compared with other Maryland counties, he said.

Mr. Feaga was reacting to a report from Raymond S. Wacks, the county budget administrator, that indicated the county will have a $20 million increase in fixed expenses next fiscal year, including an $8.3 million increase in interest on county-issued bonds.

Nearly half of the increase -- $3.7 million -- will be used to pay interest on a $45 million bond offering in the spring, Mr. Wacks said. The remainder, $4.6 million, came about because the county refinanced many of its bonds last year and used the proceeds to balance the operating budget rather applying them to reduce the overall debt.

"I was prepared for doom and gloom," Council Chairwoman Shane Pendergrass, D-1st, said of Mr. Wacks' report. "No one disappointed me."

The county needs to return to a policy of paying for certain public works projects out of the operating budget rather than using bond money to underwrite them, Ms. Pendergrass said.

Prior to the county's fiscal troubles in 1990, the county used bond financing to pay for long-term capital projects such as new schools, which Mr. Wacks said accounts for about half the debt service. The county used operating revenues to pay for short-term capital projects such as road resurfacing or roof repair. From 1990 until now, the county all but eliminated its short-term capital projects. The few that remained were paid for with bond offerings.

"I am clearly concerned about growing debt," said Councilman Paul R. Farragut, D-4th. "I think we need to spend more on pay-as-you-go and less on rainy-day surpluses."

Mr. Farragut was referring to a ballot proposal voters approved in the last election. The measure called for the government to establish a rainy-day fund to cover future budget shortfalls, and for nonbudgeted surpluses to be added to the fund until it reaches its optimum level of 7 percent of the previous year's audited budget.

There is about $4.8 million in the rainy day fund now. The optimum level, based on last year's budget, is about $19 million. The county expects to add an unbudgeted surplus of $5.1 million to the fund from local income-tax revenues. Another $2.3 million surplus in local income-tax revenues was budgeted for employee raises.

Ms. Pendergrass and Mr. Farragut want County Executive Charles I. Ecker to apply more of the expected surplus in next year's budget to debt service, leaving less money for the rainy-day fund.

Such a strategy would not be prudent, said Councilman Darrel Drown, R-2nd, a former budget analyst in the county school system. It would leave the county exposed to financial hardships similar to those suffered the past three years, he said. "You're either going to have a rainy-day fund or you're not," Mr. Drown said.

In addition to the increase in debt service the next year, the county will also have to spend $6.4 million more to maintain the state-mandated maintenance of effort for education, Mr. Wacks said.

Unless the requirement is waived by the General Assembly, counties must spend as much per pupil in the next budget as they are spending in the current one. The amount Howard spends on maintenance of effort is steadily increasing because the student population is increasing. The school system will be asking for more than a mere maintenance of effort in the next budget, Mr. Wacks told the council.

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