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County Council, May 29

The Rivers Avenue property burden grows
Drawing on fund balances in future General Fund budgets
Warwick Jones

The 2019 budget and the County’s River Avenue property (RAP) were on the agenda for yesterday’s special Finance Committee meeting. Discussion on the RAP was the most interesting.

The discussion on RAP (the old Naval Hospital) followed the revelation earlier this month that staff had estimated the renovation of the building would cost $66 million. This, when added to the $33 million purchase price would bring the County’s outlay to close to $100 million. Needless to say, this is an embarrassment for the County. It never wanted to purchase the building. But through circumstances never fully explained by the County, was forced to buy the property to extricate itself from a Court decision. The County terminated the lease agreement with the previous owners when they fell behind on their obligations. In the opinion of the Court, and because of an amendment made by the County to the agreement, the County remained liable for all future lease payments.

But the embarrassment goes further than an extra $66 million. The latter is the estimated cost of renovating 135,000 square feet, the amount of space the County would occupy. There is another 205,000 square feet in the building that needs to be renovated. The estimated cost was $135 a square foot for a total of $27.6 million. This space could be let to interested parties.

Chairman Rawl opened the discussion telling Council that he had requested staff to gather a lot of information. This information was critical and necessary for Council to shape its decision on what to do with the building. Chairman Rawl sought information on the County’s own properties, those leased, and those where it was a landlord. What were the rental and costs? What rent could it receive for a renovated RAP? What is the property’s present value? He noted that the Dewberry Hotel in the City of Charleston was an old building that had been recently renovated. He estimated that it was about half the size of the RAP but the initial property purchase was about $15 million and the renovation about $100 million. Chairman Rawl was intimating, unnecessarily in our opinion, that the County had a problem.

We won’t attempt to fully describe the conversation. Council member Darby noted that staff had said that the $66 million cost of renovation could be largely funded by a $53.5 million bond issue and which would not necessitate a millage increase. However, staff also said funding the renovation would require delaying the Azalea Road project and utilizing $10 million from the 2017 bond issue. Other Council members thought that a reduction in renovation expanses was possible. And then there were those who were just skeptical.

There was no way a decision could be made on the project last night, and Council agree to a deferral. The issue would again be discussed in 2 months, sufficient time for the staff to gather the information sought by Chairman Rawl.
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There were a number of questions related to the 2019 budget but none in relation to the General Fund. Staff said that it had budgeted $240.3 million, up $4.7 million over 2018. Property taxes will make the largest contribution to revenue growth. On the cost side, inflation was projected a 2% and personnel costs, up 3.5%.

Staff projected modest increases in the General Fund budget up until 2023. For that year, it projected a budget of $267.3 million. However, it noted that in 2020 and beyond, it was drawing on fund balances. Normally, the staff had a 30% of the current year’s spending as a target for Fund Balances (General Fund Balance and Rainy Day Fund). In 2020 and 2021, the Fund Balances would fall to 27% and 25% respectively. Staff did not say but the inference was there – the AAA bond rating may be adversely affected by the decline.

The 5 year projection for the second half-cent sales tax caught our eye. The allocations to Roads, Transit and Greenbelts were supposed to be 61%, 19% and 10% respectively. And at the end of the 25 year projected life, the ratios will surely hold. But Transit and Greenbelts are way below presently. So are Roads, but not so much. The explanation for the underfunding is the policy of accumulating funds for spending and relying less on Bonding as in the first sales tax. Press View image to see projections