Like a homeowner making extra mortgage payments when times are good, King George County, Va., is looking to pay down its debt before times get bad — and one of its primary sources of revenue is no longer available.
The Board of Supervisors is working on an ambitious plan that would reduce about 30 percent of the county's debt in the next five years. To accomplish that, the county would move money from reserve funds — which basically are savings accounts set up to ensure government functions in an orderly fashion — and allocate more new funds each year to debt payments.
No other localities in the state have put together such a "forward-thinking" plan, said Kyle Laux, senior vice president of Davenport & Co. The Richmond firm provides financial counseling for King George, Caroline and Spotsylvania counties, as well as others in Virginia and the mid-Atlantic region.
"What the county administrator and board are doing is unique ... and it's unique in a really good way," Laux said. "It's thinking long-term about the county."
Several Board of Supervisors members campaigned on the need for King George to reduce its debt, which stands at $113 million. When County Administrator Neiman Young joined the staff in February 2017, he was shocked that nothing was being done to address it.
At a work session two months ago, Young laid out numbers that caused those listening to gasp out loud. While the county has a proverbial golden goose with the King George Landfill, most of the money generated from trash is already accounted for — for the next 20 years. Even with the expansion in place, the landfill is expected to reach capacity in 29 years.
That means that for the next two decades, $6.2 million of the $7.5 million the county gets annually from the landfill already is devoured by debt. The debt is from capital projects including schools, fire houses and other county buildings.
Officials wanted to change those numbers and asked Davenport to come up with a plan. At a recent work session, supervisors favored applying $3 million from general and capital improvement reserves toward debt. The move wouldn't disrupt the county's financial policies, which dictate that King George has a certain amount set aside, Laux said.
To the $3 million one-time lump sum the county would add about $1 million each year for four years from revenues. Some of that would come from additional money King George would get after reassessments were done this year and the rest from an annual surplus.
Davenport would use the funds — initially forecast at $7 million — to pay down debt in three different payments between 2019 and 2023. Because every dollar paid on the debt principal saves about 41 cents in interest, the plan would free up about $11.1 million in cash flow and pay off $6.57 million in principal, according to Davenport.
But as the supervisors found out during the work session, the amount pulled annually from revenue sources probably would fluctuate as the county meets operational needs. The board decided to put school resource officers in two of the county's three elementary schools, and salaries, equipment and vehicles will cost $222,600. King George already has officers at its middle and high schools and will apply for a grant to get a deputy for the third elementary school.
Along with other operational expenses it's facing, King George probably would be able to set aside $200,000 from revenues in fiscal 2019 instead of $750,000 as proposed.
"It doesn't necessarily blow up our plan, but it's doing something rather than nothing," Board of Supervisors Chairman Richard Granger said.
Laux agreed.
He said government debt is like a home mortgage, not a credit card. King George's existing debt is based on a fixed rate, and the principal is repaid annually. If supervisors don't go forward with plans to pay down the debt sooner, the county is scheduled to repay about half of its debt within 10 years, according to a Davenport report.
But because paying down the principal faster frees up money, King George's debt reduction and mitigation plan should reduce about 30 percent of the county's debt over the next five years, which equates to roughly $22 million, Laux said.
"This is gonna be huge," Young said.
And necessary, said Supervisor Ruby Brabo. "The landfill is going to go away, folks. We either raise your taxes 30 cents or we make sure the debt is paid off before it does."
