County bond debt nears ceiling

Two recent actions by the County Council ratcheted the county’s potential bond debt a little higher.

Two recent actions by the County Council ratcheted the county’s potential bond debt a little higher.

But county officials say the authorization to float an additional $78.6 million in bonds isn’t likely to affect the county’s credit rating, or the annual payment made to debt service, because it is unlikely the bulk of that amount will go out to a bond sale.

After the sale of $235.8 million in bonds in February, the county’s net funded bond debt was $375.5 million. For the next fiscal year that starts July 1, $43.9 million has to come off the top to pay the principal and interest before the rest of the annual budget is computed. That’s a 19.4 percent hike during the prior year.

Finance Director Deanna Sako characterizes the county’s debt load as “a reasonable amount.”

Puna Councilman Danny Paleka was one of the members last month who questioned Sako on the debt level during a Finance Department briefing before the council Finance Committee.

“In terms of the debt service, are you comfortable with the debt service?” Paleka asked about the $43.9 million annual hit to the budget.

Sako assured the council the debt level isn’t out of line with other governments and municipalities.

“We do look at the total debt issued; we’re constantly monitoring that,” Sako said at the time. “You know, not only do we work for the county, but we also live here … We also pay our real property taxes … so we’re not going to do anything that would cause anyone additional pain, or anything like that.”

More debt was authorized but not yet borrowed. The county administration usually uses short-term notes following County Council bond authorization to get projects off the ground and then repays the short-term notes with proceeds from bond floats later.

Because of recent authorizations, the next mayor will be restricted from borrowing in the early years of the new administration, or the county could reach the debt ceiling which could affect its bond ratings. A bond rating, just like a person’s credit rating, determines how much interest has to be paid on borrowing.

The Government Finance Officers Association recommends a ceiling of no more than 15 percent of expenditures to go toward repaying bond debt.

The current debt service percentage is 8.98 percent, counting all bonds that have been floated. That percentage would go up to 13.41 percent if all authorized bonds were issued, including the two authorizations before the County Council.

It’s not uncommon for an outgoing mayor — Mayor Billy Kenoi is term-limited and leaves office in December — to load up on bond debt, according to Pete Hoffmann, a former Kohala councilman who is running for mayor.

“There’s not much wiggle room there,” Hoffmann said earlier when asked about the debt load. “Previous administrations have done that as well.”

When Kenoi took office in 2008, the percentages he inherited from his predecessor, former Mayor Harry Kim, were 10.42 percent and 13.21 percent, respectively, according to Sako.

The county expects to borrow $10.6 million to build an organics composting facility to turn food-contaminated paper and food and green waste into compost. The council unanimously approved the measure, Bill 196, on first reading May 4.

But an additional $68 million in bonds — authorized the same day — likely won’t go to a bond issue, Sako said. The money, to be used to upgrade the Kealakehe Wastewater Treatment Plant and provide reclaimed water for irrigation, is expected to be paid with the lower-interest state water pollution control revolving fund loan.

The bond authorization serves as a pledge of security in qualifying for the loan, she said.

Bill 196 and the wastewater bond issue, Bill 202, are expected to come up for final reading on the council’s May 17 agenda.

Email Nancy Cook Lauer at ncook-lauer@westhawaiitoday.com.