Franklin to take on up to $10.1M in new debt

Published 6:42 pm Friday, September 13, 2019


Franklin’s City Council voted 6-1 on Monday to take on up to $10.1 million in new debt for the purpose of financing several projects in the city’s Capital Improvements Plan.

Roughly $8 million of this will be financed via a loan from Sterling National Bank, which is repayable over an 18-year term with an annual interest of 2.7 percent. This is intended to fund replacement stadium lights at Armory Park, multiple HVAC upgrades and repairs, the replacement of several vehicles for Franklin’s emergency services and public works departments, new E-911 radio equipment and the expansion of a Franklin Power & Light substation, as well as other projects.

The rest of the new debt will come from a line of credit through SunTrust Bank, which will allow the city to draw up to $2.1 million as needed over the next three to five years for other utility-related capital improvement projects, including the purchase of a new electronic metering and monitoring system. Interest for the line of credit would be 1.96 percent, with the city only paying interest on the amount it draws.

The City Council also voted 6-1 that evening to approve a proposed schedule for restructuring $6.3 million of the city’s existing tax-supported debt at a lower interest rate. The city’s current total tax-supported debt, according to City Manager Amanda Jarratt, stood at roughly $11.4 million as of June 30, 2019.

Representatives of Davenport & Company, the city’s financial advising firm, told the City Council members during a work session prior to regular meeting on Monday that if Franklin did not restructure this debt, it would have to raise real estate taxes by about 4 cents starting in fiscal year 2020-2021 to pay for these capital improvement projects. Restructuring, according to David Rose, Davenport’s senior vice president and co-head of public finance, would allow the city’s existing annual debt service payments to cover the roughly $5 million in new debt that will come out of the city’s general fund.

“The same [debt service] payment for 2020 will suffice for 2021,” he said.

The new debt related to utility capital needs, which totals roughly $5.1 million, however, may put pressure on the city to raise its utility rates.

“Utilities are enterprise funds, so what pays the utility debt service is user fees,” Rose said. “Inevitably, we believe [utility] rates will most likely have to go up.”

Speaking to The Tidewater News on Thursday, Rose clarified this statement, explaining that he could not say with certainty at this time that a utility rate increase would be required to fund the new debt, nor could he say with certainty that a rate increase would not be required. The city, he said, should have a better understanding of if and when a rate increase might be needed once it completes a utility needs assessment to prioritize what he termed a “backlog” of utility-related capital projects. Some of these needs are voluntary, he said, but most are required.

“The debt service, at this time, should not result in a utility rate increase,” Jarratt said. “We are going to be conducting a needs analysis to look at all capital needs for the system. This could result in [a rate increase] at some point in time in the future. It is imperative if we are going to maintain our own system that we invest in it to keep it as up-to-date as possible.”

The dissenting votes for taking on the new debt and for restructuring the city’s existing debt came from Councilman Greg McLemore, who said that Franklin was “taking on more than it can chew.” The councilman also objected to taking on millions of dollars in debt now, “knowing we will have to take on more debt for the courthouse.”

Jarratt confirmed that none of the new debt is proposed to be used for funding the city’s share of costs related to Southampton County’s courthouse renovation project, nor will any of this new debt go toward renovating the city’s combined courts building on Pretlow Street.

During the City Council’s retreat in April, which Davenport representatives also attended, Jarratt had estimated that a 6-cent real estate tax increase would be needed to fund debt payments for Franklin’s share of the cost — at the time estimated to be roughly $10 million — to build a 44,000-square-foot replacement Southampton County Courthouse constructed on contiguous (adjacent) land, which would have included Franklin’s lower courts. This had been based on a higher anticipated interest rate for the restructuring of Franklin’s existing debt.

Now that interest rates are lower, and the Southampton County Board of Supervisors are in the process of soliciting bids for a new architect to draw plans for a renovation of the existing courthouse that does not expand the roughly 23,000-square-foot facility, and no longer includes plans to merge Franklin’s lower courts with Southampton’s, Jarratt said she could not estimate what tax increase, if any, might be required when the city’s share of the project cost comes due.

“There remains too much unknown at this point in time,” Jarratt said. “Once we receive an updated estimated cost of construction from Southampton County, we will work with Davenport to determine the best way to proceed.”