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United Way of Lancaster County


County commissioners approve debt restructuring in anticipation of correctional facility project

An aerial view of the land acquired by Lancaster County for a new prison. (Source: Lancaster County)

The Lancster County commissioners on Wednesday authorized the issuance of up to $30 million in debt to refinance portions of previous bond issues.

The action is the first phase of a plan to minimize the impact on taxpayers when the county finances the new correctional facility it is planning to build in Lancaster Township, Ken Phillips said. Phillips is a managing director and municipal finance expert at the financial services firm Raymond James.

Specifically, the goal is to “change the footprint” of the county’s outstanding debt so that when the debt issue for the correctional facility is added in, annual debt service remains at acceptable levels, he said.

As of 2024, Lancaster County is paying $19.3 million in annual debt service, down from around $28 million in the early 2010s. It has reduced its overall debt by more than $100 million.

The refinancing approved Wednesday will bring annual debt service down further, to about $16 million, Phillips said.

The bond issue is expected to be well under $30 million — the ordinance that authorizes it uses that figure as a maximum to be on the safe side. The exact amount will depend on market conditions when the bonds are put out for sale.

The transaction will free up $21 million to add to the county’s capital fund, where it will be invested, earning interest until it is needed. Then, when the time comes to issue debt for the correctional facility project, the net amount can be used to reduce the total borrowing needed and to offset some of the project’s debt service in the first few years, Phillips said.

That’s expected to occur in July or August, with settlement to follow a few weeks later, Phillips said. The process must be completed by Nov. 1, the original bonds’ redemption date.

Lancaster County enjoys a good reputation for financial management among credit agencies, Phillips said. Its current rating is Aa2, Moody’s third highest ranking.

The second phase of the plan will be a similar debt issue early next year, refinancing another set of bonds with 2025 redemption dates. The county will then be where it needs to be to issue bonds for the correctional facility, Phillips said.

By refinancing, the county will be extending the term of some of its debt and the interest it pays. Nevertheless, it’s appropriate because it keeps annual debt service down, Phillips said. Without it, the county could expect the financing of the correctional facility to push its total annual debt service up to $28 million to $30 million; the restructuring sets that figure up to be lower.

Commissioner Ray D’Agostino likened the county’s situation to that of a young couple with student loans. They could probably take on a car loan without adjusting their existing debt, but to buy a house, they would probably consider refinancing, he said.

For the county, the correctional facility project is a comparably large undertaking, so restructuring its debt to better align with its annual financial capacity is prudent, D’Agostino said.