A surplus in a pandemic? How Horry County got one, and what it’s being used for.

As the COVID-19 pandemic has swept through Horry County, forced closures, fewer tourists and unease about the virus, have meant less activity in the local economy and budget holes for the county government.

So how did the county find a $3.5 million budget surplus, enough to pay for several small, but needed, capital projects?

As county leaders work to assess the financial damage of the pandemic and avoid significant tax increases, a separate part of the budget has actually benefited from COVID-19, and no, it has nothing to do with federal CARES Act funding. It has to do with interest rates, and a little luck.

County Council on Tuesday voted unanimously to move forward on a plan to utilize the $3.5 million surplus, and the measure is expected to pass later this month.

“It’s like mana from heaven,” Assistant County Administrator Barry Spivey said after Tuesday’s meeting.

For most governments — federal, state and local — it’s normal to carry and pay off debt each year, typically for capital projects like road repairs, new buildings and other big purchases that both benefit people now, and years in the future. That practice also allows the cost of big purchases and projects to be paid back over time, so no one group of taxpayers is bearing an unfair load.

In Horry County, the debt service fund is the bank account that churns year to year, taking on new debt in the form of bonds and paying back bonds from years past. The county currently has a debt load of around $60 million, a reasonable amount for a government the size of Horry. In recent years, three conditions aligned to give that debt fund a surplus, something that almost never happens.

First, the property tax revenue that helps pay down the county debt came in higher than projected for three years in a row, by a total of $738,000. That’s largely a result of Horry County’s strong real estate market and the fact the county continues to grow, coupled with conservative budget projections as the pandemic arrived. An increase in both the commercial and residential tax bases contributed to that piece of the surplus.

Second, because of the coronavirus pandemic, the county put off issuing new debt last year, allowing it to save some money there. And finally, interest rates played a role.

When the county was preparing to sell its last bonds, the COVID-19 pandemic was just beginning to affect the United States, meaning the price and interest rates of the bonds were locked in before the virus walloped the economy. Then, the Federal Reserve made a series of emergency interest rate cuts to try to keep the U.S. economy afloat as the virus spread. That meant that investors who wanted to buy the bonds would have to pay the locked-in, higher interest rate associated with Horry County’s bonds, rather than the lower interest rates set by the Federal Reserve. And, given the volatility of the market, investors began to favor secure government bonds as investment vehicles rather than the less-secure stock market.

Together, those conditions meant that investors who bought Horry County’s last bonds paid a little more for them than they might have otherwise. In total, that produced a $2,769,000 surplus for the county. Combined with the increase in property tax revenue, Horry County was left with a $3.5 million surplus in the debt service fund.

“The pandemic affected the financial market and caused some investors to move funds into high-quality governmental bonds,” county spokesperson Kelly Moore explained. “Higher demand for bond purchases in the market would lower the interest rate and generated the premium in this situation.”

According to state law, any surpluses associated with debt service have to be spent on debt. In this case, because the Horry County doesn’t need the surplus money for other debt payments or reserves — those are already taken care of — it’s getting creative. Rather than paying a significant down payment on its next bond issue — something investors have said they dislike, Spivey has said — the county is instead issuing a small, $3.5 million bond in April and will pay the debt plus interest back by the end of June. That bond will help pay for three projects:

• Relocating fiber cables that run along Highway 701. The county is currently in the process of widening that road as part of the RIDE 3 road program and it will have to move the cables as a result. The county will have to pay for similar work as it widens the Carolina Bays Parkway by 2025. Together, those two projects are slated to cost $1.46 million.
• Purchasing new tax software that the county assessor, auditor and treasurer will all use. That software is expected to cost $1,750,000.
• Building a public works outpost in Carolina Forest at a cost of $1 million.

Though those projects together cost more than $3.5 million, the bond may still be enough to cover the costs as future funds could pay for the cable relocation along Carolina Bays Parkway and Treasurer Angie Jones said the county could get a discount on the tax software.

Moore said the Carolina Forest public works outpost is planned to be similar to other satellite locations like the Ralph Ellis and South Strand complexes.

“Locating the crews and equipment in the areas of high work needs minimizes the unproductive travel time at the start and end of each day and allows greater work to be completed,” Moore wrote in an email.

Jones said the tax software, made by the company Harris Local Government, will be an off-the-shelf product with custom tweaks and add-ons to fit Horry County’s needs. Currently, she said, the auditor, assessor and treasurer, all of whom help run the county’s tax collection operation, use different software. Having all three offices on one system will be a game-changer, she said. Now, updates and bugs in the software can cause hours- or days-long delays for her staff members. New software will make it easier for people to pay their taxes, allow county staff to help people sort out questions and issues faster and generally make the three offices more efficient.

“We’re getting closer to a unified system where you can see all of your business (in one place),” Jones said. “Everything will just be easier. It will just streamline everything.”

This story was originally published March 16, 2021 at 6:10 PM.