Financing Court Facility Construction

The decision to finance a court facility project does not necessarily entail incurring long-term debt or any debt at all.There are three basic options when it comes to financing a courthouse construction project:

With Short-Term Debt

When the amount of indebtedness is not large and the time frame necessary to retire the debt is not long, it is possible to use short-term debt instruments:

• Grant Anticipation Notes (GANs)
• Tax Anticipation Notes (TANs)
• Bond Anticipation Notes (BANs)
• Lines of credit
• Bonds to be retired in less than five years

Short term debt is best used when there is a need to get a project started quickly. Short term debt may be used to bridge the gap until more substantial funding can be arranged. Some of the things for which this type of debt may be used include early planning studies, needs assessments, and early conceptual design and master planning.

With Long-Term Debt

In most instances large court facility improvement projects will require long-term debt. The term to maturity on most bonds for courthouse construction tends to be in the fifteen- to twenty-year range.

There are two options for financing Long-term debt:

• Public financing
  
  1. Traditional general obligation bond financing.
  2. Revenue bonds issued through a public entity such as a public building authority, judicial building authority, industrial development association, or local building commissions.
• Private financing like that used in lease-purchase arrangements. The financing may be provided through a commercial bank, or the builder may set up a financing mechanism such as a non-profit corporation that issues bonds or COPs and holds the title to the property during the pendency of the debt.

Without Incurring Debt

It is difficult but not impossible to finance capital improvements from operating funds.

Some jurisdictions may be able to identify funds that could be made available for courthouse construction:

• Proceeds from the sale of a public building
• Accumulated funds in a jail improvement fund
• Accumulated proceeds from a property surtax
• Additions to the sales tax
• Accelerating tax payments.

Sometimes, unexpected damage to a courthouse from major calamities of nature provides a basis for funding renovation or new construction.

Some states permit the collection of filing fees that may be used to cover courthouse improvements and some states have special taxes that may be levied for capital improvement projects.

Court managers may not see the financing of court facilities as a responsibility of court administration for a variety of reasons:

• Facility financing is the responsibility of the other branches of government inasmuch as they control capital expenditures.
• The judicial branch lacks the specialized expertise required for major financial undertakings.
• If the loan payments are not charged back to the court budget, there is no compelling need to worry about the financing method.
• Even if loan repayment is reflected in the court budget, the inclusion is a pro forma bookkeeping decision that really does not affect the courts that much.
• In the course of a career, court managers may not have to deal with facility financing more than once and therefore cannot be expected to concern themselves greatly with this aspect of financial management.

Courthouse construction or renovation projects greatly impact judicial operations and their cost can directly affect court operating budgets. Court managers must be knowledgeable about court facility financing for the following reasons:

• Sometimes court managers have to be the moving force behind a financing scheme when the other branches lack enthusiasm or envision a series of obstacles.
• There is a public obligation for court managers to join in seeking the cheapest and least risky means of facility financing and in seeking to create a legal framework that permits flexibility in financing without sacrificing taxpayer protections.
• Appropriating bodies are well aware of the cost of court facilities and will at various times allude to the high cost of facility construction when considering the operating budget of the courts.
• Appropriating bodies are also aware when court facility financing is poorly handled and do not exempt court officials from blame on the theory that capital financing of court facilities is none of their business.

See Court Facility Funding Considerations for information about economic, political and legal constraints and opportunities; property considerations; up-front professional costs; and the possibility of inter-governmental cooperation.