Hilton Head Island will borrow more than $15 million against future hospitality taxes to pay for fire & rescue operations, including past and future costs to replace fire stations, ambulances, engines and other apparatus.
About $11 million in existing debt would also be refinanced at a lower interest rate, saving the town an estimated $317,000.
Town Council approved both measures unanimously at its Tuesday meeting.
Council also authorized borrowing up to $11 million against expected tax revenue from overnight lodging to preserve a one-mile stretch of beach at Port Royal Plantation.
Councilman George Williams. Jr. had questioned in previous meetings whether the town should be borrowing such large amounts against future revenue. An August staff memo showed such borrowing could not be sustained.
Projections showed the town will collect enough hospitality taxes to pay the debt through 2017.
Beginning in 2018, it faces a $176,658 shortfall that grows to $10.7 million by 2036.
Town finance director Susan Simmons, though, said staff anticipated the shortfall.
Staff proposes reducing the amount of hospitality fees used for public projects by about $1 million beginning in fiscal year 2015. The same level of public projects could still be maintained with additional borrowing, Simmons said.
"That will have a tremendous impact over 25 years and eliminate the projected deficits," she said. "Current and future debt payments are significantly less than in prior years as prior bond issues fully mature. As a result, the town can issue new debt without impacting the millage rate."
The town spent about $6.8 million buying fire apparatus and building stations by using cash on hand or borrowing from other town sources, intending to reimburse those accounts.
Not issuing the new debt for past expenditures means the town would not be able to replenish its hospitality fund balance.
"I think it's something we have to do because of past costs and future projects, but it really bothers me," Williams said Tuesday.
All three national bond rating agencies recently affirmed Hilton Head's sterling bond ratings and ratings outlook.
Moody's rated the town Aaa. Fitch Ratings and Standards & Poor's issued AA+ ratings.
The town's debt burden remains manageable, as do future capital needs and borrowing plans, and outstanding debt is repaid rapidly, according to the ratings firms.
Follow reporter Tom Barton at twitter.com/EyeOnHiltonHead
- Island council awards contract for Port Royal beach renourishment, OKs borrowing: Aug. 2, 2011
- Town official debunks myths about town borrowing and a rumored "trickle-down" effect of the federal credit downgrade at blogs.islandpacket.com/EyeOnHiltonHead.