Published: November 19, 2009 08:00 am      

County pulls out of QSCB loan project

Last month county commissioners approved accepting a $2.68 million Qualified School Bond Authority (QSCB) loan on behalf of the Cumberland County Board of Education.

This month commissioners reversed the decision and decided to pull out of the loan program after a nearly two-hour debate during Monday night's commission meeting.

"This has the potential to affect each and every child in this county in the school system," 6th District Commissioner Wendell Wilson said prior to the vote.

The deal breaker for commissioners was restrictions placed on the loan including an interest rate of up to 2.5 percent when it was originally promoted as interest-free.

Last month Director of Schools Aarona VanWinkle reported to the budget committee the school system was awarded $2.6 million as part of the QSCB program of the Tennessee State School Bond Authority.

The zero-interest loan would go toward the $5.28 million TRANE energy efficiency project for the school system that was approved in the spring by the Cumberland County Board of Education. The county approved the BOE applying for the loan back in July.

Last Friday several changes in the loan were announced during a truth in lending telephone conference between Cumberland County Finance Director Nathan Brock, Budget Committee Chairman Carmin Lynch, VanWinkle and Mary Margaret Collier, State of Tennessee Director of Bond Finance.

Some of the changes and restrictions included additional payment fees, penalties and additional charges if other counties in the state involved in the loan program defaulted and a payment schedule beginning in March 2010 instead of November 2010. The county also would not be allowed to prepay the loan off early and would be required make the payments over a 17-year period.

However, Collier told VanWinkle additional funds became available to the county after Henry County dropped out of the program. The county could receive up to $4.3 million through the program and would allow a "better financial alternative with less administrative headaches from various funding bodies," VanWinkle wrote in a letter to commissioners.

According to VanWinkle, Collier's proposal was to make the QSCB funding capable of covering the remaining debt minus the grant dollars received. The most likely scenario is a net debt service at 1.07 percent on the entire $4.3 million.

"Over the course of the past twenty months we have tried every avenue to creatively come up with funding to save the most money for our county. We have obtained $700,000 in energy efficient grants, another $500,000 in zero percent loans from Energy Efficient Schools Initiative. While the $4,300,000 from QSCB is not what we had hoped for, it is much better than anything else on the market," VanWinkle wrote.

The original resolution passed by the county commission was to accept a QSCB for $2.68 million.

"We are requesting that the county commission amend section 1 of the bond resolution for ($4.3 million) to cover the new QSCB amount. In order to take advantage of this opportunity, it is essential that we notify the Tennessee Bond Authority no later than Wednesday, November 18, 2009 of the counties decision," VanWinkle wrote.

Several commissioners did not like the changes to the loan program.

"It's irresponsible of the state to think that we can accept these terms and act within such short notice," 2nd District Commissioner Robert Safdie said.

"It's like co-signing with all these other counties," Lynn Tollett 3rd District Commissioner said. "I can't see it."

"If we turn it down we'll have to find the money somewhere else," said 1st District Commissioner Jim Inman.

"I can't in good faith vote on something that's going to hold the taxpayers of this county to those kinds of terms. It's not fair to them ... if one of these counties defaults we could have to pay more," said 8th District Commissioner Jeff Brown.

Lynch said in a worst case scenario with all the additional fees and if other counties defaulted, Cumberland County would have to pay back approximately $9 million on the $4.3 million loan for 17 years.

"My great concern is the strings attached to this," Lynch said.

"It's an unusual situation," Tollett said.

Tollett asked for Finance Director Nathan Brock's opinion.

Brock told commissioners if they were comfortable with what they passed last month, then it would simply just be financing a larger amount of funds.

"The rate is better than what's out there. You can back out and don't have to approve any of it. You're not obligated to the project. It's cheaper funds, but with the restrictions," Brock said.

Nancy McBee of TRANE had a sample resolution sent by the state so that if the commission decided to do so could suspend the rules, add the resolution onto the agenda of the meeting and simply substitute the amount of financing to $4.3 million instead of $2.68 million, which was approved last month.

Commissioner Wilson motioned to accept and adopt the $4.3 million QSCB loan and it was supported by Inman.

Commissioners suspended the rules but when it came down to the vote the resolution for the $4.3 million QSCB loan failed in a 9-8 vote.

Voting in favor of accepting the loan were commissioners Inman and Harry Sabine, 1st District; Nancy Hyder and Safdie, 2nd District; Tollett, 3rd District; Wilson, 6th District; Clyde Cramer and Lynch, 9th District.

Voting against accepting the loan were commissioners Johnny Presley, 3rd District; David Gibson, 4th District; Trey Kerley and Jack Davis, 5th District; Terry Carter, 6th District; Mike Harvel and Kenneth Carey, 7th District; and Jeff Brown and Greg Maxwell, 8th District.

McBee of TRANE told commissioners if they weren't going to go through with the $4.3 million loan because they weren't comfortable with the terms then it would make sense not to go through with the $2.6 million commitment the commission made last month.

"At $4.3 million the project works from a cash flow standpoint. At $2.6 million the project won't work and it's the same terms," McBee said.

"I don't want to kill the project," Safdie said.

"It won't kill the project, it reduces the scope of it ... these are board (BOE) issues to decide on what they will or won't do on the project," Lynch said.

Commissioners then decided to suspend the rules again in order to vote on pulling out of the loan project all together.

Carey then made a motion for the county to rescind last month's decision and pull out of the loan QSCB project.

"I support the project and I hope it comes back to us, but I'm just not happy with the terms of the financing. I want to see it come back," Carey said.

Voting to opt out were commissioners Inman, Hyder, Safdie, Presley, Gibson, Davis, Kerley, Carter, Carey, Harvel, Brown, Maxwell and Cramer.

Voting not to opt out were Sabine, Tollett, Wilson and Lynch.

Fourth District Commissioner Charles Seiber did not attend the meeting.

The school system will now have to look for additional methods to fund the project and present those to the county.

The school system still may be able to obtain funds through the Qualified Zone Academy Bonds QZAB program, which also provides for no-interest bonds. Those bonds, according to McBee, are on hold with the state now until the QSCB funds are used first.