ARRA bonds may be used for jail work

October 24, 2009
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At first, the Kent County Finance Committee eliminated a potential funding source for the $32 million renovation of the jail and juvenile detention center.

But roughly a half hour later, committee members changed their minds after County Fiscal Services Director Robert White explained the promising benefits the Recovery Zone Economic Development bonds could bring to the county.

And two days later, the full board of county commissioners gave their OK to consider using the public financing tool that has been made available through the American Recovery and Reinvestment Act that Congress approved in February.

The federal government allocated $36.5 million to Kent County for public projects, and county administrators want to consider using most of that allotment for the jail renovation.

Those bonds, also known as the Build America Bonds, are taxable to buyers and carry a higher interest rate than tax-exempt municipal securities. But with these bonds, the federal government pays 45 percent of a municipality’s interest expense — which can lower a local government’s cost of borrowing to below that of a tax-exempt bond.

County Administrator and Controller Daryl Delabbio said his staff had estimated the county could save about $3 million in interest payments over the life of a RZED bond in comparison to the cost of a tax-exempt bond.

Selling the RZED bonds also would expose the county to a different type of bond buyer. Instead of being limited to the standard institutional buyer looking for a tax break, the higher interest rate often appeals to retail buyers.

But choosing RZED bonds would force the county to pay “prevailing wages” for labor on the project, and the county’s Building Authority — and  — not county commissioners, would have the final say on which bond would finance the work.

Commissioners decided last week that Commission Chairman Roger Morgan and Finance Committee Chairman Dean Agee would have to authorize the use of the RZED bonds if the final decision is to finance the project with those stimulus fund securities.

The work involves replacing 520 beds at the jail, and the kitchen, dining and support areas in the juvenile detention center. The county hopes to get the project started next spring.

For a short time, the county considered using the RZED bonds to finance construction of the new $12 million recycling center that is going up on the west side of Grand Rapids, but ultimately decided to go to market with tax-exempt bonds.

Also last week, Finance Committee members tabled their vote to transfer $275,000 from the general fund to the agricultural preservation fund — after they accepted three grants totaling $14,175 to conduct a baseline survey on the public’s understanding of farmland preservation. The full commission also accepted the grants for the survey.

“This is not a poll on whether the public supports a millage. It’s an educational study,” said Commission Vice Chairwoman Sandra Frost Parrish. “I think a poll on a millage is quite a ways down the road.”

A majority of the committee felt more work needed to be done on the general fund budget before they could consider a transfer from the account. The proposed 2010 general fund has a preliminary deficit of $2.4 million and that is after 145 positions are eliminated.

The transfer would have represented the first year’s installment of a three-year, $1 million plan to fund the Purchase of Development Rights program the county created in late 2002 with a stipulation that tax dollars couldn’t be spent to buy development rights.

“If we’re ever going to be involved in farmland preservation, the money we’re going to need is huge. We’re going to have to go somewhere else to get money, and we’ll need a lot of it,” said Commissioner Richard Vander Molen of the projected $100 million needed to meet program’s goal of preserving 25,000 acres.

“We need a millage,” he added.

The vote has been tabled until Dec. 1.

Grand Rapids Community Foundation gave the county $8,350 for the survey, while the Wege and Frey foundations authorized grants totaling $3,000 and $2,825, respectively. The county’s Open Space and Agricultural Preservation Subcommittee is likely to select EPIC-MRA, a Lansing-based research firm, to develop and administer the survey in January.

“In my mind, it’s a (sprawl) prevention issue,” said Commissioner Jim Talen, also a subcommittee member. “This is an (economic) investment that is going to pay off in the long term.”

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