Loudon County Commission during a special called meeting on Monday approved a motion to issue the remaining funds to completely pay for the original $43 million school construction project, along with an additional $2 million to combine the elementary and middle schools in Loudon.
County officials recently discussed whether to take out a short-term loan to fund the projects or use money from the adequate facilities tax. Cumberland Securities previously made a proposal that the county attach the $9.5 million loan to the $2 million, which would mean significant savings in interest.
On a recommendation from the budget committee, commission approved the measure by a vote of 9-0, with Commissioner Harold Duff absent.
Commissioner Don Miller told the board that by law, the county could not outright spend the $2 million from the education debt service.
"We've got some excess dollars in the rural debt fund, fund 156, but by state law we cannot just take $2 million out of fund 156 and transfer it to the school capital projects because fund 156 can only be used to pay debt," Miller said, noting that the $2 million would be paid off in 45 days.
The county would accrue $1,305.55 in interest on the $2 million. The $9.5 million loan would be issued on a 10-year term with interest at a little more than $1 million. The $2 million loan will be used to combine the elementary and middle schools in Loudon. County officials have referred to the combination project as phase one-A.
"Although we are borrowing money, it's just kind of a back door way of transferring $2 million from the fund 156 to school capital projects," Miller said. "You can't do it directly. You have to do it through a very short loan."
Finance Director Tracy Blair said during a follow-up interview that fund 156 is strictly a debt service fund and can only be used for paying off debt.
"We can't write checks out of 156 to pay the contractors," Blair said. "We cannot do that. That's what he (Miller) meant. It can only be used to retire debt. ... If the county had the intention of utilizing those tax dollars to pay contractors, then the county should have assigned that tax to a capital projects fund. So, the fact that the county assigned that tax to a debt service fund indicates that the county intended to issue debt."
Commission also heard from Director of Schools Jason Vance, who explained a discrepancy between the school board's reported fund balance, which was about $4 million, versus the $6 million balance shown in the most recent state audit.
Vance said that bookkeeping practices may have varied between current business manager Chad Presley and his predecessors. He also said the school district typically updates changes in revenue at the end of the year rather than on a monthly basis, which could have contributed to the variance.
"I've never had anybody come to me, and say, 'I can't believe you saved us $2 million dollars. Shame on you. What's wrong with you?'" Vance said.
Miller said he was pleased that the school district actually had $6 million in its fund balance and recommended that Vance and central office staff bring its bookkeeping practices more closely in line with the county's.
"I expressed the reason why we asked for this on the agenda," Miller said. "(It) was not to look backward at how it happened but rather look forward at what we can do so that we don't run into this kind of problem next June and the June after that and the June after that."
Miller said the budget committee and the county considers changes to the fund balances as they occur each month.
"So by the time June rolls around, what we're reporting is our budget in June is going to be pretty close to what the state audit is," Miller said. "... If you folks would function that way, I think this whole problem would go away, and it would be better for everybody."