May 23, 2006 The Perfect Tax Storm (Part I)

Two budget meetings are behind us, and we are headed toward The Perfect (Tax) Storm.

When last year's deficit budgets were passed, the path toward a financial train wreck was begun. This year it appears to be full steam ahead.

Who will pay for the wreck? The taxpayers.

If you thought the 15-cent property tax increase in 02-03 was bad, the 21-cent increase in 03-04 was bad, and the re-appraisal of 05-06 that increased your tax bill was bad, you haven't seen anything yet.

Our first budget meeting on May 16 got us off to an odd start as we looked at the county debt budget for next year. About midway through the discussion, I pointed out that there was a $1,000,000 error (yes, that's one million dollars) in the debt payment budget we had just been given for the 06-07 budget year.

The budget we had been given showed that our debt payments would be a little over $1,300,000 in 06-07. I asked Finance Director Nicole Epps to check her figures and see if debt payments would actually be closer to $2,300,000.

Nicole looked back through debt information, did some calculations, and then told us that, yes, one debt payment (line-item) was "off" by $130,000 and, yes, another debt payment (line-item) was "off" by $870,000, and, yes, the total general debt payments would be $2,300,000 (instead of the $1,300,000 we had been given).

We got the corrected debt payment budget at our May 23 meeting. What a rude awakening there would have been down the road if we had approved the debt budget with the $1,000,000 error!

We also discussed the overall county debt. The total debt is about $46 million in principal alone (not including yearly interest charges that have to be paid). And that $46 million county debt figure does not include any of the huge M-H hospital debt that is kept in a separate debt fund.

In discussing the county debt, I asked whether the county had just been paying interest only on the four big $10 million dollar bond issues. Joe Ayers of Cumberland Securities answered "yes."

What this means is that over the past 6-7 years, we have added $40 million worth of debt but we have yet to pay a dime toward the principal of that debt. We are currently scheduled to start paying down this $40 million bond debt in 2009.

With a car payment, you pay mostly interest at the start, but you at least pay off some of the principal, too, each month. Same thing with most mortgages. The county, however, has been paying interest only on $10m, $20m, $30m, and now $40 million worth of bond issues.

And, sadly, that's just one part of the tragedy called The Perfect Tax Storm.