The Tribune Democrat, Johnstown, PA

December 5, 2013

County to refinance $19M in debt, assume $5 million loan to avoid default

Justin Dennis
jdennis@tribdem.com

EBENSBURG — The Cambria County commissioners announced Thursday that a secured bank deal, taking effect at the start of 2014, would refinance $19 million in debt over the next 15 years and allow the county to assume a new $5 million loan, to be paid over the next eight years. The commissioners believe it will partially rectify the county’s cash crisis.

Citing persistent, yearly shortfalls and unresolved disagreements over county spending measures, Cambria County Controller Ed Cernic Jr. said that county budgeteers are simply “kicking the can down the road.” He issued a challenge to the commissioners to publicly debate the county’s budget problems.

President Commissioner Douglas Lengenfelder said that budget matters aren’t up for debate.

“Spending is,” Cernic shot back.

Traditionally, according to Lengenfelder, the county assumes a $10 million tax anticipation loan each year to allow flexible spending at the start of the year, when tax revenues haven’t begun to filter in. Cambria County usually pays off the first $5 million around May, taking care of the other half around the end of the year.

With shallow end-of-year pockets and no foreseeable means to settle the remaining $5 million of the annual $10 million tax anticipation note for 2013 and avoid default, the county struck a deal with First National Bank of Pennsylvania.

Because the county is allowed to borrow only for capital improvement projects, the Cambria County Department of Emergency Services Building along Candlelight Drive in Ebensburg will be deeded to Upper Yoder Township, then leased back to the county, according to County Solicitor Tom Leiden. The shuffle, which appears to be a sale on paper, will allow the county to create a new $5 million loan since it can’t borrow against buildings it owns.

“Essentially, we lease back all the indices of ownership but effectively it’ll be exactly as if we own the building,” Leiden said. “It ends up being no functional difference to anybody.”

One caveat of the deal, according to Cernic, is that the county will receive only half of the usual tax anticipation funds in 2014. Lengenfelder said, however, that borrowing less and stretching the agreement out over the next eight years will remove the stress of the county’s usual December budget crunch.

“What we end up doing is creating the cash at the point we need it and, instead of paying fines, late fees and everything else for these huge bills, we end up ‘smooth flowing’ it – where we’ve got cash at the end of the year to pay for bills,” he said. He added that the $19 million refinancing and $5 million loan will create a $1.2 million cash and cost savings over the time of the loans – roughly $80,000 for each of the 15 years.

But Cernic, who said he was never involved in any discussions regarding the bank deal and only saw the legal agreement shortly before the Thursday meeting, warned that having only $5 million toward the 2014 tax anticipation note would limit the number of obligations he can pay. With the remaining tax anticipation balance and $8 million in unpaid bills – some of which date back to September – he said he would be looking to settle a number of the debts in January.

Cernic added that $510,500 in committed county appropriations have yet to be paid for this year, and some of those agencies and authorities rely on those county funds to make payroll. He also said that he expects the annual payments on the new $5 million loan to be $600,000, although Lengenfelder said the payments would scale down over time. Cernic said he doesn’t know how the county will make the January payment.

“Terming this $5 million out is no solution,” he said. “All it’s doing is creating more long-term debt for the taxpayers of Cambria County.”

According to Cernic, this is the first year the county has not put money aside toward the annual tax anticipation note. If the county hadn’t landed the First National loan opportunity, it would default on the 2013 note, meaning no tax anticipation funds at all for next year as well as two other loans.

He said the county is in desperate need of new revenue streams to offset its spending issues. He suggested rolling up capital improvements, such as at Laurel Crest and the county prison and courthouse, into their existing debt service – taking about $800,000 out of refinancing and putting it back into the general fund from which it was spent.

“Would it have solved all our problems? No,” he said. “But it would have been a step.

“Cambria County needs to get their financial house in order,” he said.

“Before we can do anything new – it’s not rocket science. It’s simple. It’s what we do in our home budgets.”



Justin Dennis is a multimedia reporter for The Tribune-Democrat. Follow him on‚ÄąTwitter at Twitter.com/JustinDennis.