Debt rising? County intends to borrow $18.75M for industrial projectsPublished 12:15am Sunday, July 7, 2013
NATCHEZ — Adams County’s government has advertised its intentions to take out approximately $18.75 million in new debt for three projects slated to start by the end of the year.
That’s an additional $580.55 in debt for every man, woman and child in the county.
But county and economic development officials say that one of the projects shouldn’t cost as much as the advertised bond, and that in two of three cases taxpayers shouldn’t have to pick up a cent of the bill.
The three bonds in question are:
The bond for the purchase of the former International Paper property from Rentech for $9.25 million.
The bond to construct a levee on the former Belwood Country Club in support of the KiOR cellulostic fuel plant project on that property. The bond for the levee has been advertised at $7 million.
The $2.5 million bond used to purchase a warehouse in the Natchez-Adams County Port.
Of the three bonds, so far only the $2.5 million to purchase the warehouse have actually been taken out. The 15-year bonds have a 4.5 percent interest rate, and the closing date for the warehouse is set for July 24.
The Rentech property bond will soon follow, with the closing date for the sale set for Aug. 12.
But the KiOR bond remains up in the air. While it has been advertised and the structure for borrowing is in place, Adams County Board of Supervisors President Darryl Grennell said the county would not move forward with the sale of bonds until Natchez Inc. — the county’s economic development agency — gives the green light that certain benchmarks have been met.
The supervisors moved in February to purchase an expansive warehouse in the Natchez-Adams County Port that the port authority had been operating on behalf of Valley National Bank since February 2012 after the bank foreclosed on the warehouse’s former owners.
Though the county had originally planned to finance the purchase another way, the supervisors switched to funding the purchase by bond in June.
The move was prompted by the fact that Genesis Energy wanted to more than double its operations in the port and needed quick access to the acreage associated with the warehouse, Natchez Inc. Executive Director Chandler Russ said at the time.
Grennell said the port authority would continue to operate the warehouse after the sale is completed, and the funds generated by the warehouse will be used to underwrite the bond.
Supervisors Vice President Mike Lazarus said his understanding was that the warehouse generated nearly $70,000 in profit for the bank last month.
“If they are making that kind of money, we aren’t going to have a problem paying it,” he said.
The Rentech property
The county won a bid for the Rentech property against a competing bidder in March, and the deal will officially close in August.
Natchez Inc. officials said that the purchase was so the county could gain access to International Paper’s industrial wastewater plant and so the county could have more control over the marketing process of the 478-acre property.
“The access to the available space that it is a large industrial tract property on the river, access that is not available up and down the river right now from New Orleans up, you just don’t find those tracts of property with that amount of infrastructure, mainly with the wastewater treatment facility,” Russ said. “To build that facility brand new would be anywhere from $50 to $80 million, and that in itself is going to be something that is extremely marketable to clients.”
Lazarus said County Administrator Joe Murray is working out how to pay the $9.25 million bond associated with buying the infrastructure. Murray could not be reached for comment last week.
But Lazarus said taxpayers should not worry about a big tax bill to finance the purchase.
“We have made adjustments where we don’t have to raise a bunch of millage to pay for it,” he said. “We know how to structure it where it won’t have a real adverse effect on the taxpayers.”
The supervisor also said that the property — or at least a portion of it — may sell quickly once the county has the deed, rendering the ability to pay back much of the bond in a single swoop.
Russ said some risk is always involved in a property purchase, but that the Rentech land already has parties interested in it.
“We feel confident that — given what all is going on with everything, with the activity on the site — that we will have the property sold prior to that debt coming due,” he said.
The KiOR levee
The Belwood property in which KiOR plans to build its Adams County facility is prone to flooding when the Mississippi River rises, and Grennell said when the board bought the property in the late 1990s the members knew it needed a levee for the land to work as an industrial development.
“We have always over the years said we would wait until a serious company came in and showed good faith that they wanted to build industry on that particular site before we built a levee on it, and that is what we have at the present moment,” he said.
The levee project is estimated to cost between $4 and $4.5 million. Grennell said the county advertised for $7 million in bonds just in case to cover any contingencies that might arise, but any money not used in the construction of the levee would not — and could not, legally — be used for anything else.
Since the bond was originally advertised, the county has also been awarded a $2 million grant for the levee from the Mississippi Development Authority.
But while KiOR has announced its intentions to invest $450 million in Adams County and has a tentative groundbreaking timeline for late 2013 or early 2014, the supervisors said they would not move forward with the levee project until a memorandum of agreement about KiOR’s commitments to Adams County is signed.
“The bottom line is we are not gong to commence any construction until we have the paperwork in place to look out in the best interest of the county,” Grennell said.
Russ said the KiOR bond would be financed by a fee-in-lieu agreement with the company.
Fee-in-lieu is an arrangement that takes the place of ad valorem taxes, Lazarus said, but can still be used to fund the project.
If the company was to abandon the project after construction commenced, the county could recoup its costs by putting a lien on the property, Russ said.
“You have got to imagine our whole levee project is $4 to $4.5 million, and they are going to be sticking $450 million in the ground, so the bank and the lenders will be protected in our lien position if it gets to that point, but we don’t anticipate that happening at this point,” he said.
Russ said he does not anticipate Natchez Inc. asking the county to make any large investments in the near future.
“Obviously, this is it for now,” he said. “With the Rentech property — in good poker terms — we are shoving all in to the middle.”
The county’s financial advisor, Demery Grubbs, said what the supervisors can spend is statutorily capped at 15 percent of the assessed value of the county. The county’s assessed value is at approximately $241.5 million.
That means the county can borrow approximately $36.2 million.
Grubbs said, however, that he always advises his clients to keep 20 to 25 percent of their borrowing capacity in reserve in case an emergency arises. That would take the county’s advisable borrowing down to approximately $27 million.
Grubbs said accounting for current debt, potential new debt and the payment structures involved — which also affect borrowing ability — he feels the county is well within its advisable borrowing limits.
Why the risk?
Grennell said when assessing what and when to borrow, the county has to look at the investments that industries will make, which sometimes amount into the hundreds of millions of dollars.
“It will have a tremendous impact on this county — we are talking high-paying jobs with retirement and insurance benefits,” he said. “This allows the people of Adams County and surrounding and contiguous communities to buy homes and provide taxes to this community; and it even enhances the retail community. There is a domino effect that is being created here — when you have a major industry that is being invested in your community, it has a tremendous impact on your community.
“These are wise investments for Adams County.”