Jim Folts   Blount County Commissioner

 

“To stand in silence, when they should be protesting, makes cowards out of men” - Abraham Lincoln

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  • Thursday March 17, 7:00 pm, room 430, Blount County Courthouse

 

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. Just send me an email at jimfolts@gmail.com, or give me a call at 995-9476.


The Blount County Commissioners


Citizens for Better Government
 

 

Delinquent Taxpayer List

The work has begun

On September 1, 2010 I took the oath of office as Blount County Commissioner. I was elected to listen to you and make your opinions known to our County government. Feel free to measure me against the issues we talked about in the campaign. A link to my campaign brochure is included in the left column of this page. Let me know how I am doing by emailing me or phoning me at the address and numbers shown in the left column.

To keep you posted, I will include a summary of each Commission meeting on this page. I will list the important issues covered in the meeting, as well as the results of each vote on those issues. You can also view the video of each meeting by using the link in the left column.

Thank you for giving me the opportunity to earn your confidence.


February 2011 Report


Commission Meeting 2/17/11
– Making $100 million decisions on bad information - This may have been the most important meeting of this Commission term and I was not able to be there. My wife’s illness required us to be at Vanderbilt Medical Center in Nashville. Major decisions were made on the County's huge debt problem, in a discussion that lasted less than an hour. Unfortunately, these decisions were made on inadequate and, in some cases bad, information, without time for real analysis of the problem. At the Agenda meeting, I pleaded with the Commission to call a special meeting dedicated to discussing this complex problem. Commissioners Hasty and Lail joined me in this effort, but we were voted down.


The first part of the debt discussion addressed the refinancing of the $46.625 million balloon payment due in June, combined with a $1.7 million library bond issue. There were several important questions about this transaction that did NOT get asked or answered.

First, the resolution presented to the Commission set a $50,000,000 value on this offering. Even allowing for fees, this is $1,000,000 more than the funds required. Why was the Commission asked to sign this blank check for a $1,000,000 more than was needed?

Second, the fees the County is paying for this bond issuance seem inordinately high. The County estimates it will pay $490,000 in fees. Yet, Knox County paid just $300,000 in fees to issue $57 million worth of bonds. The bulk of the difference is in the fee being paid to the underwriter, of $5.50 per thousand dollars of bonds. Knox paid just $2.70 per thousand. And, the County paid just $2.15 and $2.75 per thousand on two bond offerings done in 2008. Why is the County paying more than double those underwriting fees on this deal?

Next, the Commission tried to address the problem of the $105 million of variable rate bonds that will be left after the balloon payment is refinanced. Unfortunately, the Commission was given a great deal of inaccurate, and just plain bad, information in this discussion.

First, the Commission was told that the holders of the variable rate bonds do not have the right to demand payment on the bonds. This is false. The proper name for these bonds is Variable Rate Demand Obligations (VRDO). The legal Official Statement describing the $50.5 million E-1-A bond in question is very clear, saying:
 
Demand Purchase Option
Any Series E-1-A Bond bearing interest at the Daily Rate or the Weekly Rate shall be purchased from the Registered Owners thereof on any Tender Date at a purchase price equal to 100% of the principal amount of the Series E-1-A Bond tendered”.

““Tender Date” means (a)during any Daily Period, any Business Day, and (b) during any Weekly Period, the seventh day”.


Since the interest rate on these bonds is currently adjusted daily, the owners of the bonds can demand full payment of their bonds on any business day.

This demand payment provision is one of the things that make these variable rate bonds so risky. Handling the possibility of demands for immediate payment of these bonds requires many side agreements. If any side agreement fails, the entire deal blows up, and must be refinanced, often on an emergency basis.

Let’s look at the pieces of these variable rate bond deals. Because these bonds are usually only purchased by tax-free money market funds, they must be both high quality and highly liquid to the bond holder. Liquidity requires the demand payment provision. The interest rates on these VRDO bonds are typically reset daily or weekly. They also must be AAA rated for the money market funds to buy them. Since the County does not have a AAA credit rating, another party, who does have a AAA rating must, in effect, insure payment by the County. Currently, this insurance is provided by a major bank, in return for a nice fee. To handle the occasions where the bondholders demand payment, the County pays a bond remarketing firm another nice fee to sell the bonds to another party, before the County has to come up with the money. To make it as easy as possible to sell the returned bond to somebody else, the County gives the remarketing firm the power to set whatever interest rate is required to quickly roll the bond over to a new purchaser. What if the remarketing firm cannot sell the bonds? Since the County cannot come up with millions to pay the bonds, the County must pay a bank another nice fee to stand ready to come up with the money to pay the bondholder, if the bonds cannot be remarketed. Currently, both the bond credit enhancement, and the standby liquidity, are being provided by a bank in the form of a letter of credit, which must be renewed annually. If the bank has to step in and pay, the County must repay the entire amount to the bank, typically over a year or two, not the planned 25 or 30 years the bonds are written for. This is what led to the infamous $46 million balloon payment, when one of our bond deals blew-up in 2009.

Since short term interest rate can swing wildly, derivatives contracts, called interest rate swaps are negotiated to “synthetically fix” the interest rates on the bonds. The problem here is that “synthetically fixed” is a Wall Street lie. About all the swaps do is reduce the size of the swings in interest rates. The swings can still be quite large. The Commission was given more inaccurate information on this subject. The Commission was told that the current ‘all-in rate’ for the E-1-A variable rate bond issue, and its swaps, was 3.5%. The actual rate is 4.1%. (0.6% matters when you are multiplying by $50 million). The Commission was told that the ‘all-in rate’ could be expected to swing between 3% and 5%. Using interest rates for the last twenty years, the correct range is really more like 4% to 6.3%. In other words, the County’s “synthetically fixed rates” could allow interest costs to increase by more than 50%. Since we will have a total of $105 million of this variable rate debt after the balloon is refinanced, this could cost the taxpayers tens of millions of dollars over the life of the bonds.

 

The major objection to refinancing the $50 million worth of the County's variable rate debt to fixed rate was that it would cost $5.2 million to cancel two of the interest rate swaps. The Commission was told that, if interest rates rise, the cost of cancelling these swaps will come down. The Commission was NOT told that the rise in interest rates will cost a fortune in added interest charges, if we wait to convert the $50 million in debt to fixed rate debt.


The previous paragraphs probably make your head pound. The takeaway is this. There are a lot of parts to these variable rate bond transactions. Lots of things can go wrong. The provider of the credit enhancement insurance can lose their AAA credit rating. The bond market can get so skittish that the bonds cannot be remarketed. The bank can refuse to renew the annual letter of credit, or, make the fee for the letter of credit prohibitively expensive. The provider of the swaps can lose their credit rating and make their interest rate hedge worthless. Failure to take all these risks into account, make the estimate of savings from staying in variable rate bonds, that was provided to the Commission, a pure fiction.

In fact, nearly all these risks turned into reality in 2008 and 2009. This is why more than $140 million of our variable rate debt blew-up, and had to be refinanced on an emergency basis. Those who sold the County on these financial schemes, made additional millions in fees, while the citizens paid the bills. For example, the County paid $637,000 in fees to finance the original bonds behind the $46 million balloon. Supposedly, this financing was going to be good for approximately 20 years. In 2009, these bond deals blew up and the County could not sell long term bonds to replace them. So the County paid another $368,000 in fees for the short term balloon financing. Now the County is going to pay another $490,000 to issue fixed rate bonds to pay off the balloon payment. Getting rid of the swaps associated with the original two bond issues, currently will cost another $5.2 million dollars. Did this eat up all the savings from going variable rate instead of fixed? Yes. Did this expose the County to huge risks and the need for emergency financings? Yes. Should the County contiune to have $105 million of its debt in these risky deals? No.


When the vote came, Commissioners Burchfield, Caylor, Hasty and Murrell voted NO on the refinancing proposal, because they felt more discussion, analysis and investigation of alternatives was needed. Commissioners Moon, Melton, Harrison, Lambert, Lewis, Wright, Burkhalter, Farmer, French, Greene, Helton, Harrison and Kirby voted to continue without further discussion.


Very few taxpayers finance their home with variable rate mortgages. They are just too risky. The County’s swaps and variable rate bonds multiply these risks. Should we really continue to risk hard earned taxpayer money on a $105 million bet in the Wall Street casino? The Commission should hold additional discussions on the variable rate debt problem, NOW.

Agenda Meeting – 2/8/11 – Not worth holding a special meeting to discuss $100 million in debt - The major issue at this meeting was the refinancing of the County debt. The two ‘alternatives’ were presented to the Budget Committee the previous day and most Commissioners did not have time to review the lengthy and involved information. Two alternatives were presented by the Mayor and Finance Director. The first would refinance the $46 million balloon payment that is due in June of this year. The second alternative would refinance half the $105 million of variable rate debt that still burdens the County.

The Finance Director was very clear in defining the problem. The quarter billion dollar Blount County debt is double what it ought to be. Far too much of this debt is tied up in risky variable rate instruments. If not handled correctly, our debt decisions could sink the County, as they almost did in 2008 and 2009.

I tried to point out that these were some of the most important decisions that the Commission would make during this four-year term. The County debt is a very complex subject. Time should be allowed for consideration of alternatives, including some not presented by the Finance Director. I begged the Commission to hold one or more special sessions dedicated to the debt problem, or to delay the consideration a month, to give all the Commissioners a chance to read and understand all the various alternatives. Unfortunately, with just a few minutes of discussion, the Agenda Committee decided to pass only the refinancing of the $46 million balloon refinancing for consideration by the full Commission. Commissioners Hasty, Lail and myself voted against this ill considered, hurried approach to the most important problem facing the County.

On a more positive note, the transfer of the Emergency Management Director’s budget to the Sheriff was withdrawn. This request raised significant legal, management, and civil rights issues. Good sense prevailed.


The $50,000 budget increase for the “Justice Center” parking lot came up yet again. This time it was scaled back to $5000. I asked why we were even spending $5000. The lot was not needed in the first place. Only Commissioner French and I voted against sending this bad idea to the full Commission.

A request for approval of nearly a dozen leases for new copiers came up. These copiers are costing the County $100 to $200 per month. In many cases, a suitable equivalent copier can be purchased for $500. I objected, and was the lone vote against this waste of taxpayer money.


Human Resources Committee meeting – 2/8/11 - No taxpayer representation - The County employees enjoy medical benefits that most citizens would love to have. Basically, the County medical plan pays 100% of most preventive care and 90% of most other medical expenses. Prescriptions are capped at a maximum of $60, even for the most expensive medicines. In addition, County employees also have access to a free medical clinic. The cost for this plan is zero for the employee, and just $100 per month for family coverage. The rapid rise of medical costs means this medical plan is adding significantly to the tax burden on County citizens. Most other Counties charge their employees significantly more than our County (Click here to see comparison).

The Mayor and Finance Director had a consultant prepare a study to look at getting County medical costs under control. This was supposed to be presented to the Human Resources Committee at their 2/8 meeting. The Human Resources Committee is made up ten members. All but three members are either County employees, or have close relatives who are. There was a great deal of discussion about the County employees and no discussion about the plight of the County taxpayer. Thus, it is no surprise that the Committee voted to keep the benefit package unchanged, without even listening to the consultant’s report. The refusal of the Human Resources Committee to address this problem can only have one result. More employees will have to be laid off to pay the added benefit costs. Or, taxes will have to be raised on the citizens of the County, many of whom are paying $400 to $1000 per month for far less medical coverage. Mayor Mitchell and Commissioner Lewis voted to look for solutions to this problem. Sheriff Berrong, Highway Superintendent Bill Dunlap, Registrar Phylliss Crisp, Commissioners Tonya Burchfield, Gary Farmer, Ron French, and school employee David Murrell voted for the status quo.


Budget Committee - 2/7/11 - Debt Presentation, No substantive discussion - The Finance Director made a presentation on his view of the alternatives in refinancing up to $100 million of the County debt. There was little substantive discussion of the content of the presentation. After a few minutes discussion, the Committee voted have the Finance Director make the same presentation to the Agenda Committee.