County Looking For Way To Pay For Projects
The Riley County Commission has $25 Million worth of projects and no
money. They need to find a way to fund the projects and still have
money to run County Government.
Citizens will need to keep a close eye on the Commissioners as they
work through this problem. Remember four years ago this Commission
(less Mr. Johnson) slipped a clause into the Riley County Jail funding that had there problems solved.
In the fine print the Commissioners, on the advice of a high dollar
Topeka attorney, stipulated that from that time on citizens did not have
right to protest or vote on any building project.
Six month later that section was removed but only after the Manhattan Mercury ran six stories and editorials on the subject.
Monday the Commission was give a memo that looks like they are attempting
to find ways to finance big items without a vote. Here is the
PROJECT FUNDING AUTHORITY FOR RILEY COUNTY
K.S.A. 19-15,114 to 19-15,118 authorizes the construction, equipping
and financing of county public buildings. A public building is defined
any building or structure determined by the board of county commissioners to be necessary for a public county purpose. These statutes
provide two separate methods of financing public buildings. First, a county by resolution can issue general obligation bonds, in an amount
not exceeding $300,000 to make public building improvements under the statutes. Issuance of general obligation bonds in an amount greater
than $300,000 requires the county to conduct an election. Depending on the nature of the improvements it is sometimes possible to finance
several separate $300,000 projects at once without conducting an election. This only works if the projects are truly separate and distinct
rather than related to a single project. Second, a county under the public building statute can authorize a levy of an annual tax of not greater
than 1 mill for a period not exceeding 10 years to create a building fund for a specified purpose. This building fund tax may be levied after the
board of county commissioners adopts a resolution authorizing the tax and describing the purpose for which it will be used. This resolution
must be published once a week for three consecutive weeks with the final publication triggering a 30-day period in which not less than 10%
of the voters in the county may file a petition requiring the question of the tax levy to be submitted at an election. If no protest is filed or if
the tax is authorized at an election, the building fund tax levy may begin. After making the second levy, the county may issue general
obligation bonds, without an election or protest period, in an amount which, together with the tax revenue already received, will not exceed
the amount stated in the resolution authorizing the tax levy. This is an option which would permit the county to convert certain pay-as-go
projects to bond financed projects after the second levy is made. The additional mill levy might be offset by a reduction elsewhere.
The disadvantage to issuing general obligation bonds in any substantial
amount under the public building statutes is that such debt counts
against a county’s aggregate debt limitation. Before proceeding with an issue under these statutes it is advisable to look at all of a county’s
outstanding debt and categorize it as subject to or exempt from the statutory aggregate debt limitation stated in K.S.A. 10-307. This will
provide a clear picture of how much room the county has to issue debt which is subject to the limitation, to inform your choices about the
methods used to finance a particular project.
Public Building Commission
An option available for financing certain public buildings outside of
aggregate debt limitations is to form a public building commission (PBC)
under K.S.A. 12-1757 to 12-1768. A county may create a separate municipal corporation known as the public building commission. A PBC
may be created by a resolution of the board of county commissioners which specifies the purpose of the PBC and its members. In some cases
the board of county commissioners act as the members of the PBC. A PBC may acquire sites for and construct and remodel buildings or other
facilities, including parking facilities, which are maintained and operated as a county courthouse, county offices, city offices or other
purposes commonly carried on in connection with such facilities.
Once a PBC exists it may issue revenue bonds which are subject to publication
and protest (K.S.A. 12-1759) to finance public building
construction or improvements. The bonds of a PBC are paid from the revenues the PBC obtains from leasing public buildings to counties or
cities. Thus, a Riley County PBC could issue revenues bonds to finance public buildings and lease the facilities to the County for a rental
price sufficient to pay the principal of and interest on the bonds. The lease payments made by the county to the PBC are exempt from the
Kansas cash-basis law and the budget laws. These exemptions mean that the interest rate on a PBC revenue bond will be closer to that of a
general obligation of the county rather than the higher rates usually associated with lease backed financing.
The PBC statutes are also subject to home rule charter. Charter resolutions
are often utilized to broaden the purposes for which the PBC may
issue bonds to include facilities like jails, libraries or recreational facilities. Lease payments made by the county to a PBC are not considered
debt within the meaning of any statutory debt limitation. The PBC structure has been used successfully by a number of counties in the state
to finance county administrative offices or courthouse construction or renovation.
Lease Purchase Options
Direct lease purchase financing (without a PBC) is available to the
county to finance public buildings and equipment. This is an option Riley
County used in connection with the Courthouse Plaza East facility. Unlike PBC lease revenue bonds, direct lease financing by a County is
subject to annual appropriation under the cash basis law exceptions for leases. The cash basis law also requires a notice of protest period for
any lease purchase agreement for real estate or buildings which provide for payments in any one year in excess of $100,000. Lease financing
of this type is not subject to debt limitation. Direct lease financing usually is more expensive for a county than general obligation or PBC
lease financing because the interest rate will reflect the additional risk to the investor associated with the annual appropriation requirement.
It is possible for Riley County to refinance the current outstanding
lease debt for the Courthouse Plaza East with general obligation bonds
provided all the requirements for the issuance of the general obligation bonds are met, which would mean in this case holding an election if
the County chose to issue general obligation bonds under the public building statutes discussed earlier. It might also be possible for a PBC
to issue revenue bonds which would refinance the outstanding lease. In either case, the new debt should have a lower interest rate than the
lease; provided the outstanding lease may be refinanced on a tax-exempt basis under federal tax law. The answer to the federal question will
depend on when the lease was originally executed and if it has ever been refunded on a tax-exempt basis.
Sales Tax Revenue
This will require an election to provide for a 1/2 or 1/4 cent sales
tax with the proceeds to be used for infrastructure and economic
Once a sales tax is in place a county may issue sale tax revenue bonds
under K.S.A. 12-195. If a county intends to pledge the revenues of the
sale tax to revenue bonds, that recital may be part of the ballot proposal presented to the voters when seeking authorization of the tax. If the
recital is not part of the ballot question authorizing the tax, sales tax revenue bonds may still be issued, but the question of pledging the sales
tax revenues to the payment of revenue bonds is subject to a notice and protest period.
Sale tax revenue bonds are payable only from the pledged sales tax receipts
and, like any revenue bond will carry a higher interest rate than a
general obligation bonds. The rate on such bonds will depend on a number of factors, such as the historic stability of sales tax receipts in the
county, the diversity of the businesses which generate the sales tax, the expectation of any significant increases or decreases in sale tax
revenue and general economic trends for the county. Such bonds are not included in any statutory debt limitations. Sale tax revenue bonds
may be issued for any purpose for which a county may issue general obligation bonds without the need to go through the procedures for
issuing the general obligation bonds. Counties have authority under various statutes to issue general obligation bonds for road and bridge
Sales tax revenues may also be pledged to the payment of general obligation
bonds of a county. Under K.S.A. 1999 Supp. 12-195b a county
may issue general obligation bonds to pay for any improvement for which the county is authorized to issue general obligation bonds and
pledge revenues from sales tax to the payment of the bonds. This type of bond is payable both from the sales tax pledge and from ad valorem
taxes of the county. The intent is always that the sales tax receipts will be adequate to pay the bonds, but, if it is not, the county will levy ad
valorem taxes or use other county funds to make the payments. These bonds sell and bear interest at general obligation rates. Depending on
the nature of the projects financed, such general obligation bonds may be subject to aggregate debt limitations.
To issue sales tax backed general obligation bonds it is necessary to
have the statutory authority in place to issue general obligation bonds.
In the case of county roads and bridges the most practical authority is K.S.A. 1999 Supp. 68-1103. This statute authorizes the construction or
repair of roads and bridges and the issuance of bonds to finance such costs. Bonds to construct or repair bridges or culverts may be issued
upon resolution of the board of county commissioners and are not subject to aggregate debt limitations. The issuance of bonds under this
statute to finance roads is a bit less friendly. Bonds issued for the construction or repair of roads may only be issued subject to published
notice (once a week for three weeks) and a 60-day protest period during which 5 % of the electors of the county may submit a petition
requiring an election on the matter. General obligation bonds issued to finance roads under this statute are included within debt limitations.
There are other statutes permitting the issuance of bonds for road projects, which may work for a county in limited circumstances, but, in my
experience, 68-1103 often proves the most practical choice.
Riley County is exploring the possibility of funding, in partnership
with Manhattan, the development of an industrial park. A sales tax which
was authorized in part for economic development purposes could be used for this purpose. Another possible revenue source for this or other
economic development purposes is the imposition of an origination fee on the issuance of industrial revenue bonds in the County pursuant
to K.S.A. 1999 Supp. 12-1742. This fee is paid by the beneficiary of the industrial revenue bonds issued by the County and may only be used
for economic development purposes. Of course, this is only valuable if the County issues industrial revenue bonds.
K.S.A. 19-4101 permits counties which have adopted a comprehensive plan
to establish an economic development program for the county. A
countywide economic development program may be funded from general operating funds (which might include sales tax revenues) or from an
annual tax levy designed to create an economic development fund. Such a levy is subject to notice and protest and may not be acceptable, as
it will be an increase in the overall mill levy of the county.