Commentary on the proposed Dresden Municipal Complex
Editorial by Jeff Washburn
How much is the new Dresden Municipal Complex going to cost? How much will the tax rate have to go up?
Those are questions that are being asked often by citizens of Dresden as plans have been finalized for the new municipal complex, cost estimates have been made, and construction may soon be ready to begin.
However, answers to the two questions in the first paragraph are illusive, at least if you either attend or listen to the broadcasts of the Dresden City Board meeting. It is almost as if the answer is a big secret not to be shared with the taxpaying citizens of this community and apparently not even Dresden Aldermen, who have approved the final design plan and gave the go ahead with construction of the new facility.
In the Dresden City Board meeting on Monday night, April 3, two local citizens requested information on the cost during the meeting and how much funding the city has received from insurance, FEMA, and any other sources. Answers to the questions weren’t readily provided when asked and the most prominent response were words similar to “We don’t know.”
However, later in the meeting, Mayor Mark Maddox, who was the respondent to the citizens questions, stated that it is estimated that the combined total should be somewhere between $2 million and $2.5 million that could be paid on the total construction costs. This was during the time on the agenda designated for the board to approve obtaining a loan in the amount of $6.988 million for construction of the new municipal complex. However, it was noted that bids had not been finalized for the project in order for the city board to have a clear estimate of the total cost to build the facility.
The motion was made to approve obtaining a United States Department of Agriculture (USDA) loan for $6.988 million for the construction project and the city board approved the motion with Alderman Kenneth Moore casting the lone no vote on the motion.
The USDA Rural Development loans can be used for construction of municipal facilities and the payoff of the loan can be extended out up to forty (40) years. The interest rates for Rural Development loans are generally comparable to municipal bond rates, but there is less cost for obtaining the USDA loan as compared to the cost to issue municipal bonds.
Still there was no answer to citizen questions in regard to how much the city property tax might have to increase in order to repay the borrowed funds.
It was mentioned, however, that the probable interest rate for the loan would be approximately 4.6 percent although the exact interest rate will not be determined until the loan is finalized at the end of completion of the project. USDA loan interest rates are normally established quarterly.
Using an online amortization calculator with a repayment term of 30 years, it was easy enough to determine that an estimated tax rate of $1.06 would be required to pay off a loan of 6.988 million with an interest rate of 4.6%. If there is $2 million in funds to pay toward the total construction cost of $6.988 million, that would leave a loan amount of $4.988 million, for which an estimated tax rate of 75 cents would be required to repay the loan.
Now let’s take a look at the projected tax rate taking the now current property rate of $1.4837 and adding the estimated tax increase that might be necessary to fund the loans payments for either a $6.988 million or $4.988 million loan. If the loan is $6.988 million and the current property tax rate remains unchanged to fund the city’s general fund, the Dresden property tax rate would increase from $1.4837 to $2.5437.
If the loan amount is $4.988 million, then the property tax rate would increase from $1.4837 to $2.2337. With either loan amount, Dresden would instantly go from having the lowest property tax rate in Weakley County to by far having the highest property tax rate in the county.
Using those potential tax rates after the loan repayment cost is determined at the end of the project, for a house and lot appraised at $100,000, the city taxes at the $1.4837 rate are currently $368.43. If the loan ends up at $6.988 million, the property tax would potentially increase to $643.43, an increase of $275 per year, at least until the tax base in Dresden expands to allocate the tax burden among more taxable properties. If the final loan debt ends up at $4.988 million, the current tax rate of $1.4837 would increase to $2.2337, which would be a property tax increase from $368.43 to $558.43, which is an increase of $190.00 per year.
I want to emphasize that these figures are preliminary because it is not yet known if Dresden will be able to maintain it’s current property tax rate going forward, even without the addition of the loan payment. It is also not known what the final construction cost of the municipal complex might be. That cost could be lower or higher than the current estimate.
There are a lot of variables that will go into determining the final costs and the loan amount; not the least of which is the cost of building materials and how much in FEMA funds the city may receive for the project as well as potential grant funds that may be received that can be applied toward the cost of construction.
Even though the final construction cost, the final loan amount, the loan interest rate, and total years financed are not yet known, the citizens of Dresden deserve to know a good faith estimate of the what the new Dresden Municipal Project is going to cost them in taxes. Taking what little information is currently known, I have done my best to arrive at an estimated cost so that citizens and aldermen alike can have a good faith estimate of the range where the annual cost in taxes might be as a result of the project.
Opinions and letters published in The Weakley County Press are not necessarily the views of the Editor or Publisher.
