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“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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or give me a call at 995-9476.
The Blount County
Commissioners
Citizens for Better Government
Delinquent
Taxpayer List
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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.
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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.
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