Polk County commissioners decided on Monday to pay off an outstanding loan that will save the county $362,513.

The decision is contingent on Polk being approved by the N.C. Local Government Commission (LGC) to secure up to $1.85 million in financing for a new department of social services (DSS) building.

The loan to be paid off was initially a $4 million loan from BB&T that funded the construction projects a few years ago for the middle school, recreation complex and transfer station. If the county continued to make regular loan payments, it would pay another $2,498,720. Paying the payoff amount of $2,136,207 now could save the county $362,513.

Polk County Manager Ryan Whitson told commissioners Monday that there are no penalties for paying off the loan early and he recommended the payoff for a couple of reasons.

Whitson said with recent audit report numbers, the countys fund balance is getting too high. With uncertainties with the state budget, Whitson said it would be safer for the county to reduce its fund balance in case the state decides to supplement its budget with local funding.

He said he has seen a similar situation with Western Highlands, Polks mental health entity. He said the state told Western Highlands to use its fund balance instead of receiving state funding and he doesnt want that to happen to Polk County. Whitson recommends the county maintain a 15 percent fund balance and Polk Countys was 35.4 percent as of June 30, 2010, according to the audit presented on Monday (see front page story).

Whitson also said it makes sense for Polk County to pay off the $4 million loan and finance the DSS building because of the state and federal reimbursements available for interest payments made for the building. The state and federal governments will reimburse certain costs for the new DSS building, which is being constructed off Wolverine Trail in Mill Spring, including about 61 percent of loan interest costs.

Whitson said the county will still have a fund balance of approximately 24 percent if the loan is paid off. The state recommends that local governments have a minimum of eight percent of its general fund in reserves.

The loan will not be paid off until the county closes on the DSS loan.

Polk plans to take $1,957,013 from its fund balance and use the already budgeted loan payment for this year of $176,320 to pay off the loan.