County has borrowing capacity to meet building needs

By policy, Johnston County can devote no more than 20% of its annual budget to debt payments.
As this graph shows, the County had add more debt for building projects without approaching 20%.

Between the schools, the County and its courts, Johnston faces some $524 million in building needs over the next four to five years.

The good news, according to the County’s financial adviser, is that Johnston can easily take on those building projects. 

That’s partly because of how the County borrows money, explained Kyle Laux of Davenport & Co. “All of the County’s debt is fixed-rate and short-term, with about two-thirds repaid within 10 years,” he told County Commissioners on Jan. 20.

Because of that, Johnston’s current debt payments are scheduled to fall from $46 million this year to $6.6 million in 2045. Just as important, interest payments are set to shrink from $13.5 million this year to $269,250 in 2045.

“That’s on purpose — to have this kind of ski slope down by responsibly paying off the principle each and every year,” he said, showing commissioners a bar graph of falling debt. “What that downward slope allows is capacity to take on new projects in the future.”

By policy, Johnston can spend no more than 20% of its budget on debt payments. It’s at roughly 12% now. Another policy caps debt as a percentage of the county’s total property value at 4%. It’s 0.8% now.

“So what you see is you’ve got very good capacity,” Laux said, referring to room for borrowing.

That borrowing — for schools, courtrooms and a new home for Social Services — will benefit from the lowest possible interest rates, Laux noted. “You have two AAA crediting ratings — one from Moody’s and one from Standard & Poor’s,” he said. “Those are the highest possible credit ratings that any local government can have.”

Laux offered just one cautionary note.

Since 2019-20, the County’s revenues have outpaced its expenses, fueling a fund balance, or savings account, that now stands at $230 million.

“You’ve got an annual surplus,” Laux noted.

But Commissioners have cut the property tax rate several times in recent years, while spending has grown to meet the demand for County services. 

“What we are seeing … is that the gap between revenues and expenditures is shrinking,” Laux said. “It’s still positive, meaning we’ve got more revenues than expenditures. But if you just visually look at the size of that surplus, it’s shrinking each and every year.”

That’s cause for prudence, not alarm, Laux said. “We, as your outside adviser, think you’re in very good financial shape,” he said. “There are no red flags here. But as you go through another (budget) planning cycle, it’s good to point out that we are seeing the trend whereby, again, the size of the surplus — that gap — is closing.”