Only a lender likes debt. But it’s become ingrained in the American psyche as the way to have today what can be paid for tomorrow.

People use it to buy homes and cars. Governments on every level use it to build infrastructure and provide services.

Everyone is attune to the numbers that splash across headlines regarding millions of dollars, billions of dollars and trillions of dollars in debt accumulation on local, state and national stages, respectively.

Debt is at an all-time high nationally and in Texas. The national debt eclipsed $18 trillion earlier this year. Consumer debt, which includes those credit card purchases, has reached $3.3 trillion nationally. Student loan debt topped $1.1 trillion in late 2014.

The state of Texas’ debt sits at $43.5 billion and local debt owed by school districts, cities, counties and special districts, which provide utilities and emergency services, topped $328 billion last year.

The state’s 254 counties owe a part of the pie but the slice isn’t as big compared with other taxing entities around the state.

Lonnie Hunt, of the Texas Association of Counties, said Texas counties have issued less than 7 percent of total debt among local taxing entities, $14.1 billion.

The majority of county debt is tied to urban and suburban counties, which use the money to keep pace with growth and fund major facility construction and road projects, he said.

“We’ve seen growing concern about state debt and are hearing more about local debt, but by and large, counties aren’t the problem,” Hunt said.

 

COUNTIES’ COMPARISON

Taking on debt to pay for major capital projects has been something most counties do when the property tax rate doesn’t meet immediate needs.

Smith County has issued debt since its inception. It has done so with and without voter approval and dedicated money to pay to maintain and improve its facilities. And as it grows from a historically rural to more urbanized county, the cost of infrastructure to accommodate growth is expected to continue an upward trend.

County Judge Joel Baker, elected in 2006, said the Commissioners Court has made fiscally conservative decisions during his tenure. He said the county has maintained a historically low tax rate but that it came at the cost of deferring some needs over past decades, such as facility maintenance and improvements.

Baker said county debt was nearing a zero balance before voters passed a $35 million bond issue in 2011 to expand the jail. He said the court has represented the fiscally conservative mindset of the community and made decisions regarding debt and spending accordingly.

is in the middle of the pack among comparably sized counties, including Webb, Jefferson, McLennan, Brazos, Hays, Ellis, Johnson, Midland and Ector as of Aug. 2013. Smith County owed almost $33.585 million in 2013, and $30.3 million, according to its 2015 budget. Most of the debt obligation is tied to the jail expansion project.

By comparison, Hays County owed the most within the group with almost $276 million in debt obligation in 2013, and had the third-highest property tax rate, 46.9 cents per $100 valuation. Ector County owed the least, $10.5 million, and had the lowest property tax rate, 29.72 cents per $100 valuation.

 

FINANCING OPTIONS

During the past two decades, Smith County used various methods to finance capital improvements, new facility purchases and new construction, including certificates of obligation, limited tax notes and general obligation bonds.

Certificates of obligation and limited tax notes don’t require voter approval, while general obligation bonds require an election and a majority of voter support.

The county issued certificates of obligation three times during the past 15 years, including 2000, 2001 and 2004, taking on $24.5 million in debt without voter approval. In 2006, the county voided $3.5 million of the 2000 bond that remained unused.

The county borrowed $12 million in 2000 to build a new juvenile detention center. At the time, community leaders and commissioners described the existing center as crumbling and crowded. There was discussion about holding a bond election, but commissioners decided to expedite construction without taxpayer approval.

In 2001, the county used certificates of obligation to purchase multiple properties along Ferguson Street northeast of the courthouse, including the Smith County Courthouse Annex. Several offices housed in the courthouse were moved to the annex to alleviate the lack of office and courtroom space.

The county issued $6.5 million in certificates of obligation in 2004 to renovate facilities, including expanding courtrooms and upgrading security in the courthouse.

The use of certificates of obligation drew the ire of local watchdog taxpayer group Smith County Association of Taxpayers and individual community residents. It’s become a taboo way to pay for projects and commissioners have expressed an unwillingness to issue certificates of obligation because of possible political ramifications.

Former county commissioner Sharon Emmert, who was also a member of the taxpayer group, said certificates of obligation were viewed as a way around voters. She disagreed with commissioners at the time for bypassing voters.

Mrs. Emmert was a commissioner when the county used them to finance the juvenile center, the purchase of the annex building and the facility renovations.

She disagreed with commissioners at the time for bypassing voters.

She said she disagreed with the price of the juvenile center but that the purchase of the annex building was a good investment.

“I still think COs are not right because taxpayers don’t have a say,” she said. “Smith County voters are smart and probably wouldn’t have passed the juvenile center plan, but purchasing the annex was some of the best money Smith County ever spent. I just didn’t like the way they did it.”

PATIENCE, ‘PAY-GO’

Smith County’s property tax rate has increased 10 cents per $100 valuation since 1998, according to the state comptroller. In 2012, the last year the state comptroller tracked statewide property tax rates, Smith County’s rate was the 21st lowest among 254 counties.

The county’s bond rating among borrowers improved to AA-plus Standard and Poor’s in 2011. In May 2011, commissioners placed a $35 million bond package before voters to issue general bbligation bonds to address a problem that plagued county budgets since 2004 — jail overcrowding. Voters approved taking on the debt.

The county spent more than $2 million most years since to pay to house inmates in as many as eight surrounding counties’ jails under the Texas Commission on Jails mandate. More than $20 million was paid to house inmates outside Smith County since 2004.

Smith County rejected four bond plans ranging in price from $59.6 million to $125 million in three elections in 2006, 2007 and 2008 before approving the 2011 bond package.

Beyond multiple attempts to use debt to pay for the jail expansion the county has moved away from borrowing over the past decade and toward a “pay-as-you-go” initiative, which the city of Tyler made popular with dedicated half-cent sales tax revenue. “Pay-as-you-go” means projects are funded with cash rather than taking on debt.

The program was viewed as a way to address maintenance and smaller facility purchases and projects.

In 2007, the county dedicated 1 cent of its property tax rate to a fund, Fund 45, designated for capital improvements. The penny now generates about $1.1 million for the fund annually.

The county spent more than $10 million on capital improvement projects, including the Sheriff’s Administration Building and cleaning the courthouse for the first time since 1955, during the past several years.

County Judge Baker said the “pay-go” method has required patience to address priorities, especially facilities long neglected. But he said paying cash built credibility with the public and has become a successful program for addressing major facility needs.

The court’s No. 1 facility priority had been moving several departments, including the Sheriff’s Department, out of the Smith County Office Building, formerly the Carlton Hotel. All departments have vacated the building, deemed a drain on resources because of maintenance requirements, and moved into renovated or existing spaces.

For instance, the sheriff’s administration moved into a 22,000-square-foot remodeled/new construction facility on Spring Avenue in late April 2011. The total cost of the Sheriff’s Administration Building was $1.9 million or $88 a square foot and was paid from the capital improvement fund.

FUTURE COSTS

In the past year, commissioners have discussed future options for an upcoming comprehensive road plan for its county road system. An engineering firm is finalizing the plan, which is expected to rank and prioritize road projects, including complete road rebuilds and improvements such as widening for turn lanes.

Early estimates pushed upgrade costs into the tens-of-millions of dollars but no official cost analysis has been made public.

Commissioners said they likely would present the plan publicly to open a discussion regarding how to finance the plan, whether via dedicated portions of the tax rate over a longer period of time or seek voter approval of general obligation bonds.

Baker said Smith County officials have planned to address facilities, roads and other core needs for decades but that the property tax rates over those years never allowed action.

“We’ve been digging out of a hole,” he said. “We’ve gone through master planning for decades, but nothing ever happened. Now we’re taking care of the plans and some of their ideas and thoughts were utilized. It’s just taken time and money.”

Twitter: @newsboyAdam