Recent declines in interest rates have produced a pair of very different responses at the Douglas County Courthouse.
In the register of deed's office, lower interest rates have been good for business. Just across the lobby in the county administrator's office, they've created an extra dose of anxiety.
Douglas County Register of Deeds Sue Neustifter said that drops in interest rates, including the recent half-point drop by the Federal Reserve, have spurred record amounts of refinanced mortgages in the county. That means an increase in county revenues because every mortgage is charged a filing fee by the county.
Those fees, which amount to 26 cents per every $100 of the mortgage amount, are on pace to exceed the county's budget projections by more than $900,000 in 2001.
County Administrator Craig Weinaug says the extra money will come in handy because when he looks at the county's overall financial picture he sees more problems than benefits from declining rates.
Weinaug said the county's projections for interest income earned from various county investments will fall short for 2001 and possibly 2002. He also is braced for a shortfall in the county's sales tax collections. That's because Weinaug knows the interest rate reductions resulted from a slowing economy. A sluggish economy means people will buy less.
"I think the increase in these mortgage fees is going to cover us for the 2001 fiscal year, but I think it will be unrealistic to expect it to cover any of the downturn for 2002," Weinaug said. "I think we'll be facing ongoing problems just like every business in town will face. The revenues will be down because of a recession."
Neustifter has been the county's Register of Deeds since 1972 and has worked in the office since 1959. She said she's never seen mortgage activity like this before. Through September, her office, which has been putting in large amounts of overtime to deal with the rush, has collected more than $200,000 in fees in four different months. In all of 2000, her office only collected more than $200,000 in one month.
In May of this year, her office collected $277,151 in mortgage fees, the highest total ever. Neustifter said the increase in activity isn't from new home construction; rather, homeowners are refinancing to take advantage of rates at the lowest levels in years.
Neustifter said she suspects many people are refinancing more than the remaining balance on their homes.
"I probably shouldn't say this, but I think a lot of people are maxed out on their credit cards and this is a good chance for them to go back to the bank and get some needed money," Neustifter said.
The fact refinancing, rather than new home construction, is driving the spikes in mortgage fee collections has Weinaug pessimistic about any long-term financial boon to the county.
"Eventually everyone who is going to refinance will have done it, and that will be the end of our extra revenue," Weinaug said.
Bracing for a downturn
Weinaug is guessing that day will come sometime in 2002, and his office, which prepares the county budget, could be facing several shortfalls.
County officials anticipated a slowing economy in 2001 and had actually projected for budget purposes that sales tax revenues would be down by 2.5 percent from 2000 totals. But they were not expecting the trend to continue into 2002.
"We projected that it would bottom out in 2001 and not get any worse in 2002, but now it looks like it might," Weinaug said.
Weinaug said it is too soon to estimate how much the county may lose in sales tax revenues, but it is not too early to see the effect of lower interest from the county's bank accounts.
The county budgeted for $1.15 million in interest income this year. The projection was on track the first six months of the year. But that was when county investments were averaging 5 to 6 percent interest. An investment made earlier this week will draw the county only 2 percent.
"I don't know the exact impact, but it will result in a shortfall of at least a couple hundred thousand dollars this year," Weinaug said.
Moreover, the county isn't in much of a position to take advantage of the declining interest rates by refinancing its own debt.
Weinaug said he has studied the possibility but found most of the county's debt was too recent to be refinanced.