County borrows to pay bills
Tax anticipation notes are commonly used as a budgeting tool
It sounds worse than it is. The county is borrowing up to $5 million to cover operating expenses.
But taking out a tax anticipation loan is something often used by county governments across Georgia as a way to match expenditures with revenue.
“Nearly all counties operate with tax anticipation notes,” Walker County Tax Commissioner Carolyn Walker said. “That is mainly because taxes are collected in the last three months, October through December. That is normal.
Walker said the county’s primary source of revenue is derived from taxing property. Until state law changed a few years ago automobile sales boosted collections. But now, the tax commissioner said no ad valorum tax is collected annually and the county receives just a portion of the 7 percent on the purchase price.
“That’s all,” Walker said. “Except for $1-per-tag collected from license plates.
“This year, by the end of December we had 96 percent of the (property tax) money collected and disbursed.”
During her June 9 public meeting, Commissioner Bebe Heiskell signed documents to obtain a line of credit — up to $5 million of temporary financing —that will be repaid with taxes receipts that are due before year’s end.
The county has assets valued at $107 million and projects collecting about $27 million in taxes for 2016, she said.
“We’ll draw it down as needed, and I hope we don’t need it all,” she said. “This is to pay for the county’s business.”
By law, counties cannot borrow more than 75 percent of the total gross amount, including special purpose local option taxes (LOST, SPLOST, ESPLOST), collected in the previous calendar year. The amount borrowed must be repaid in full, with interest, before the end of the calendar year.
Walker County’s recent TAN carries an annual interest of 4.25 percent, payable on the amounts actually borrowed.
Heiskell noted that this year’s loan will be less than half of that required for 2015, the year when Walker County was forced to repay a loan guarantee for operations at the bankrupt Hutcheson hospital.
In Rome, similar tax anticipation notes — slightly more than $6 million worth — were issued last month to cover costs of operating schools. It is something done nearly every year during the summer months and the TANs are repaid when property taxes, due in midNovember, are paid.
Counties use TANs to even out revenue collections during the course of a year. The process is similar to utility companies allowing customers to make equal monthly payments based on historical usage, something that allows predictable budgeting over the course of a year.
“This is operating money for the months when we don’t have a lot of mon- ey coming in,” Walker said.
Catoosa County Chief Financial Officer Carl Henson said use of anticipation notes is not at all uncommon.
“It’s just something to use until you collect taxes,” he said.
Henson said that the low period for collecting revenue, from September to December, is often times when county governments will either borrow money or arrange for lines of credit.
“It (TANs) was developed to meet a need,” he said.
Since it is such a regular occurrence, a lot of counties do not put out requests for bids but will just go to their local bank every year obtain these letters of credit that allow them to meet payrolls and pay bills, Henson said.
And there are strict regulations about how such notes can be issued, used and repaid.
Tax anticipation notes cannot be obtained if there is an unpaid TAN from the prior year, and one note cannot be used to rollover an existing note into a new tax year.
In some ways, TANs are similar to a homeowner securing a line of credit or a home equity loan, borrowing money from the bank but keeping it in the bank, for a potential project.
Last year Whitfield County officials approved a TAN just in case their county ran short of cash on hand. Since it requires about 60 days to set up such an anticipatory note, those elected leaders decided to secure that letter of credit — just in case.