BY LAUREN HENRY
The Town of Greeneville is looking ahead financially.
At last Monday's Greeneville Budget and Finance Committee meeting, Bob Windham and Jack Fitzpatrick, members of the committee, said there is a need for three- and five-year financial plans for Greeneville's future.
In 2010 the Town refinanced its bonds, bringing a reprieve in bond repayments for the next few years.
However, 2016 will mark a return to yearly bond payments similar to pre-2010 amounts.
Fitzpatrick and Windham, both of whom are retired from careers in financial professions, requested that the Town create three- and five-year plans for its finances.
Committee chairman and Alderman Darrell Bryan said it is difficult to project revenue for that far into the future.
However, Windham said that it is possible to project expenditures and by doing that, to project what revenue the Town will need in the future.
Windham said this is important in order to make a projection about whether tax increases are needed to supplement increasing expenditures. He said if tax increases are needed, he would like them to be added incrementally rather than in a large amount at one time.
"If we are going to have to have a property tax increase in order to fund this thing, I would rather see us do it in increments rather than, three years from now, [having it jump] 20 percent," Windham said.
"That's what I feel like we need to be looking at: how are we going to do this and what is it going to take to do it?"
Deferring tax increases is a political issue as well as a financial one, Fitzpatrick said. "We get good aldermen in, and if they have to raise taxes, there are people that won't vote for them."
Greeneville City Administrator Todd Smith suggested the board create three- and five-year projections when the fiscal year 2014 budget is created.
"By not looking at a five-year plan, we are remiss because it's going to happen," Windham said, referring to the increased 2016 bond repayment.
"If we project our expenses out over five years, it's going to tell us how much revenue we've got to have to support it," he continued.
"If the growth and current revenue we are looking at doesn't support it, we've got to have a plan that says, This is what we have to do," Windham said.
However, Mayor W.T. Daniels said he does not believe tax increases will be needed.
"Looking at our reserves, we will have the money," he said.
Ashley McAnulty, financial advisor for the Town and vice president at Stephens Inc., explained that the Town's bond refinancing in 2010 allowed a period of reprieve in debt repayments to avoid the burden of the severe economic downturn falling on the local taxpayers.
When the economy went sour and sales tax revenue dipped, the Town faced a choice: refinance or raise other taxes.
McAnulty said that sales tax revenue has recovered.
The history behind the Town's refinancing reveals why it was needed, how it has saved the Town money, and how much more prepared financially Greeneville is today than it was several years ago, McAnulty said.
A large portion of Greeneville's annual revenues go to support the Town's school system, McAnulty explained.
When the bond was purchased, it was considered a low-risk way to fund needed expenditures: the Town would pay off its debt over the next several years with relatively low interest payments.
The practice was common in numerous small towns.
Greeneville relied on the financial group Morgan Keegan & Company to assist with financial decisions -- as did 37 other cities and counties across the state, reported The New York Times in 2009.
Morgan Keegan advised many municipalities to purchase municipal bond derivatives.
Many of the towns, including Greeneville, were advised to swap rates, which meant that part of the bond carried a variable rate of interest that represented a much higher risk than a bond with a completely fixed rate.
However, the municipalities were not properly warned about the high risk the complicated swap rates represented, McAnulty said.
When the economy plummeted in 2008 and 2009, many municipalities saw interest rates quadruple.
The New York Times covered the financial crisis during April of 2009.
The crisis resulted in legislation preventing high-risk derivatives for municipalities in the future.
Daniels said that the Town of Greeneville was caught in the financial web.
The Town made the decision to refinance and, in the refinancing, sold its bond through competitive bid. McAnulty said it was a fully transparent process.
The Town now has a traditional, low-risk, fixed-rate bond debt. It is fixed at 3.6 percent interest.
Daniels also said the Town saved money by no longer paying fees associated with the previous bond.
McAnulty said that, if the refinancing had not been done, the Town in 2016 would have paid about $2,211,957, which is only a projected figure, and subject to change based on the variable rate.
After the refinancing, the projected bond payment for the year 2016 is $2,048,200.
However, the refinancing allowed a reprieve during the years of 2011 to 2015.
Town Recorder Carol Susong reported that 2015's bond payment will be $1,454,406.26.
The years 2015 and 2016 do still represent a significant increase in debt repayment for the town.
The amortization schedule calls for the last payment on the bond debt to be issued in 2029.
McAnulty pointed out that the Town of Greeneville has not added any debt since 2000, and commended the Town for its tight financial management in recent years.
"I think [refinancing] has proven to be one of the best things we have ever done," Susong said.