A closer look at Chatham’s $85M limited obligation bond proposal

The bond will go toward building and equipping a Chatham County Schools’ Central Services building and a new county Emergency Operations Center

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The Chatham County Board of Commissioners have authorized the issuance of limited obligation bonds (LOB) amounting up to $85 million, which will go toward building and equipping a Chatham County Schools’ Central Services building and a new county Emergency Operations Center.

The two projects will be financed by $40 million of the approved LOB proposal, Assistant County Manager Bryan Thompson said in an email to the News + Record.

“The remaining $45 million provides the opportunity to refinance portions of existing debt obligations of the county. This will depend on the favorability of the market at the time of the county’s bond offering,” Thompson said. “Numerous factors will be considered to calculate and determine the efficacy of refinancing existing county debt. Refinancing existing debt could lower the cost of that debt, which would further improve the county’s financial position  and increase the county’s debt capacity.”    

The bond issuance was approved at the board’s June 21 meeting. 

Both projects — the CCS Central Services building and county Emergency Operations Center — fall under the county’s capital projects. The county updates its 7-year Capital Improvement Program (CIP) every year, which includes capital expenditures more than $100,000.

The implementation of the CIP is funded through two primary sources, Thompson said — the county’s debt reserve and its Capital Reserve accounts. Smaller capital projects that do not require debt are typically funded by the Capital Reserve, he said, while larger capital projects that require debt are funded through the county’s Debt Reserve. The two projects to be financed by the LOB approved at the board’s June meeting are examples of larger projects requiring debt issuance.

In the case of large capital projects, Thompson said bonds are often a more attractive method of borrowing because the bond issuer — in this case, the county — is able to lock in a longer-term interest rate, often lower than lending traditional of a bank.

“The lower the interest rate for the borrower, the less the loan ends up costing,” he said.

Unlike a General Obligation Bond (GO Bond), a LOB does not require a vote from the electorate. Instead, it requires a majority vote of the governing body of the local government. Whereas a GO Bond usually requires an increase in the local property tax to cover the bond debt, a LOB uses existing revenue sources.

Though the board approved the issuance of the bond, Chatham’s fiscal health and economic outlook will be rated at some point this month by Standard and Poor’s (S&P) and Moody’s before moving forward in securing the bond. (The county’s last bond rating in 2018 by the same agencies was AAA and Aa1, Thompson said, ratings that essentially indicate a strong capacity to repay investors and the debt.)

The county hopes for its AAA rating from S&P to remain and for the Moody’s Aa1 rating to be improved one step, to an AAA rating, Thompson added.

“Once rated and approved by the Local Government Commission (LGC), the principal amount approved by the Board of Commissioners will be placed on the market for pricing with investors in early August,” he said. “This will provide the county with the monetary capital for these two capital projects and to potentially refinance portions of existing county debt obligations.” 

The school system’s Central Services Building design was approved by the district’s board of education in May 2020. It’s slated to be built on Renaissance Drive five miles west of Pittsboro off of U.S. Hwy. 64. The one-story, 38,000-square-foot facility will eventually replace the current building on West Street.

In the approved fiscal year 2021-27 CIP document developed by the Chatham County government, the building was projected to cost $11,142,055 to construct. That document stated that the current West Street building “exceeded its capacity resulting in the creation of inefficient satellite offices around the county,” and “has surpassed its intended lifespan and is in need of costly repairs.” 

Estimated costs for both projects increased in the approved 2022-28 CIP document due to “updated construction estimates.” The Emergency Center budget was increased by $3,873,651 and the CCS building by $3,857,945.

The existing Emergency Operations Center (EOC), meanwhile, also located on Pittsboro’s West Street, was completed in 1994 and houses the EOC meeting room where decision makers gather during disasters, as well as the 911 Communications Center. The communications room was built to hold four telecommunicator consoles, and in recent years, the number of consoles increased to six. 

“If existing estimates for population growth in Chatham County are fulfilled, the Communications Division will need to hire more full-time telecommunicators,” the CIP document recommending a new center says. “This will require more consoles and associated equipment. Since the communications room is currently filled to capacity, there is no room for this needed expansion.”

Thompson said county-wide growth will mean providing for the replacement of aged facilities and infrastructure, as well as “the construction of new facilities to meet the dynamic needs of our community.” That new building is also set to be built on Renaissance Drive.

“As Chatham County continues to grow, so too will the demands on it for providing quality and responsive public services,” he said. “For many years now, the Chatham County Board of Commissioners, along with our staff and management, has taken practical and proactive measures to forecast these needs and to consistently exercise a disciplined strategy to meet these needs in a fiscally responsible way.”

Reporter Hannah McClellan can be reached at hannah@chathamnr.com or on Twitter at @HannerMcClellan.

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