Hall County government’s debt and the question of whether its size could hurt taxpayers down the road has been the topic of debate during contested local races ahead of the July 31 primary.

Some candidates have criticized the county for amassing debt that will leave taxpayers to cover the burden.

Meanwhile, incumbent candidates say the county is in good financial health.

In order to better educate the public, The Times looked over the financial statements of Hall County and other districts, and talked to financial experts, as well as county officials, to understand the nature of local government debt.

According to an independent audit of Hall County’s 2011 finances, the government actually owes $136.9 million in what’s considered long-term debt.

It’s a large number considering the county’s annual general fund budget this year was $89.2 million.

But that single debt number can only go so far in explaining the county’s long-term fiscal health, officials say.

Portions of what is classified as debt are based on what the government could owe its employees in benefits after they retire, while other parts are tied to infrastructure investments that officials expect to pay for themselves over the long term.

How Hall stacks up
In terms of the size of the government’s debt, Hall County is still far below its legal debt limit.

In 2011, the county could legally have borrowed up to $743.3 million, which is more than three times the size of Hall County’s actual debt.

But county officials say the government has no interest in approaching that ceiling.

“There’s no way we could ever have that,” said Vickie Neikirk, the county’s financial director.

Other than the legal debt limit, there is really no rule of thumb of how much debt a county should get into, said Beth Grimes, an auditor with BatesCarter, a CPA and business advisory firm. The agency was responsible for auditing the Hall County 2011 financial statement.

“It can be all over the board,” she said, depending on the kinds of services a government provides and how much revenue it expects to earn from them.

A county that’s heavily involved with water and sewer services may have more debt than one that is not.

Grimes said it can be helpful to compare county to county based on size to determine financial health.

Neighboring Forsyth County, which has a similar population size to Hall, has a total long-term debt of $303 million. Much of that is tied up in capital bonds.

Athens-Clarke County, a consolidated government, also has a debt of more than $300 million. Henry County’s is $419 million.

But even Grimes admits there’s no apples-to-apples comparison on what kind of debt a county should undertake.

In terms of how Hall County’s financial report stacks up to others in the region, she said, “Hall County is probably average to better as far as their debt. Compared to other governments throughout the state of Georgia, Hall County’s debt is less.”

Another indication of a county’s debt health is its credit rating.

Rating agency Moody’s has given Hall County an Aa3 rating, which qualifies the county as a “high quality” borrower with “very low credit risk.”

Auditing eye-catcher
One of the biggest eye-catchers on the county’s debt sheet is a line item called “Net OPEB obligation,” which is listed at $48 million.

OPEB, which stands for other post-employment benefits, calculates the benefits that are owed to employees after retirement.

The time frame for when that cash has to be paid out is unclear considering some employees are still decades away from retirement.

The post-employment-benefit calculation is a new auditing standard the federal government requires state and local governments to track.

Those benefit obligations are steadily rising every year. Grimes said the number may rise by about $17 million annually.

But that number is being paid only incrementally.

“From a cash standpoint, what’s being paid out by Hall County is $1.4 or $1.5 million a year,” said Grimes.

Grimes said the number shouldn’t be ignored but put into context.

“It is important,” she said. “But it gives commissioners time to decide whether to amend health insurance.”

Grimes said most local governments are facing similar rises in post-retirement liability.

County leaders, she said, have to look at whether the amount owed is realistic and when they expect employees to begin retiring.

At some point, county officials could decide to change benefits if there were concerns about paying the costs.

How the county pays its debts
Perhaps the biggest concern of debt is how a government will pay for it.

Hall County Administrator Randy Knighton said there is “an established mechanism” to pay for the government’s debts.

“The majority of our debt is for citizen-approved SPLOST projects,” he said.

Grimes notes that the financial statement reports the majority of the general obligation debt will be paid off by 2015. Much of that will come from revenue sources other than property taxes.

The county’s long-term debt is divided into governmental and business-type activities. Business activities are typically designed to pay for their costs through user fees and other charges, whereas governmental activities are partially funded by tax dollars.

About $64 million of the county’s debt falls into the business category, and $73 million is governmental.

About $2.7 million of the county’s remaining debt will be paid through the general fund, estimates Neikirk. The general fund is largely bankrolled by taxpayers either through sales or property taxes.

About $45.8 million of the county’s debt is expected to be paid through SPLOST VI.

The rest is expected to be paid through user fees associated with sewer and landfill use.

While business debt is supposed to pay for itself, there is some concern about the $14.5 million that the county owes for the Spout Springs Water Reclamation Facility it purchased in 2007.

The idea was to pay off the bonds issued to buy the plant with sewer fees as South Hall grows. However, slowed growth caused by the recession is making it harder for the county to make its principal payment for the bonds, which don’t mature until 2027.

Knighton said county staff and the commission “are working on establishing a proposed rate structure that will enable” the government to pay off its debt “in a shorter span of time.”

According to Hall County’s financial statement, the county is obligated to levy a tax to pay off the bonds if sewer treatment revenues fall short.