County banks on loan payoffs to save tax dollars later
Morgan County Commissioner Brad Close drew on his professional accounting background as he pressed his fellow commissioners to consider paying off multiple county loans as a way to protect the county’s cash flow in the future.
“It’s important that we take a look at how we can cut our own debt at the local level,” Close said during the July 7 commission meeting.
Close proposed paying off the county’s two smallest loans – the remaining $62,700 balance on the soccer field along U.S. 522 and $9,400 in car loans for the Sheriff’s patrol cruisers.
The total payoff for those debts will be just over $72,000, as of this month. Monthly payments on those loans add up to $3,000.
The large chunk of money for the loan payoffs would come from the county’s Coal Severance account – money the county receives each year from the state.
After paying off the two loans, Close proposed the county apply $3,500 per month to its larger debt on the building that houses the Sheriff’s Department – the former Magistrate Court which once served as the town’s post office.
The county still owes $107,600 on that building.
Close described the process as a “debt snowball,” where a borrower pays off the smallest debts first, and then applies those payments to a larger debt in an effort to eliminate the debt quickly.
Pay them all off?
While eager to pay down the county’s debt, Commission President Stacy Dugan wasn’t satisfied with Close’s proposal.
Dugan repeatedly said she wanted to pay off all three loans – especially because the Magistrate Court building is the largest loan of the three.
Until recently, it was also the highest-interest loan of the three.
Dugan reported that, after a June commission meeting with local banks about their services and fees, Morgan County received a letter from CNB Bank lowering the interest rate on the building loan from 6.5% to 4.75%.
“My concern is why were we paying the extra percentage all that time?”
The soccer field loan has been at 4.75% interest, after Commissioner Hutchinson refinanced the debt with the Bank of Romney nearly two years ago.
The county pays 5.25% interest on the police cruisers.
Close estimated that the loan payoffs would save the county up to $12,000 in interest over the life of the loans.
He projected that an “aggressive” payment schedule on the Sheriff’s Office building would eliminate the loan by the end of the 2012 fiscal year next June.
Dugan continued to press the issue of paying all three loans, asking if the county could take money from other accounts to make a $180,000 lump payment.
Commissioners Hutchinson and Close both said they were uncomfortable depleting the county’s cash reserves that much.
“You don’t want to go overboard and be in a position where you need cash and don’t have it,” said Commissioner Hutchinson.
Dugan said some of those reserves were earning very little in interest – far less than the county was paying in interest on their debt.
Close agreed, but recommended paying the final loan over the year. He amended his proposal to include making a one-time $15,000 payment on the principal of the Sheriff’s Office loan.
The commissioners voted 2-1 for the payoff scheme, with Commissioner Dugan opposing as she held out for full payment on all three loans.
County officials said they see the debt reduction as a way to protect the county’s cash flow in the future, especially considering the millions of dollars still to be paid for the courthouse project.