NEED YOUR ADVICE, AND THE SOONER THE BETTER What shall we do with our debt in 2015? THE PROBLEM: In 2014 and 2015, a city of 5,300 will throw away a combined total of $725,000 in interest while infrastructure needing improvement is ignored as a result. Willard owes approximately $11 million in outstanding debt obligations to be paid over 18 years. Under current trends and taking into account forecasted necessary capital improvements, our level of debt will continue to spiral upward. We are not alone, merely following the pattern of many other municipalities. ALTERNATIVES DISCUSSED BELOW: - Continue to Gamble - Stop Leasing the Pool - Sell the Water/Sewer System - Seven Years of Painful Cuts - Raise Taxes - Some Combination of the Above w/Refinancing WHAT ID PREFER: Pay down our debt and learn to plan ahead, set aside the millions wed otherwise throw away in interest expense, and apply those millions toward future necessary improvements. THE APPROACH: Below are suggestions. Each possible solution is merely presented for your consideration and input. Im only one guy with limited knowledge and limited perspective. The decision should be in your hands, not left exclusively to a Board of six people. POSSIBLE SOLUTIONS (none of which are good): OPTION 1 - CONTINUE TO GAMBLE Weve delayed making a decision in hopes that our expanding debt problem will go away while waiting on a wider highway and the arrival of larger businesses. A few questions: Would increased sales tax revenue from larger businesses rescue us from our current and future debts? Or, would future Boards just decide to spend even more money? Why depend entirely on the decisions of business owners to move here - decisions we cant control, rather than on the amount of revenue we spend - a decision we can control? Of course we should pursue larger businesses, but is it responsible to continue to ignore our current problems? OPTION 2 - STOP LEASING THE POOL $5.4 million remains to be paid on the aquatics center. Since 2008, weve paid $1.2 million in interest and a mere $65k in principal. We dont have a loan on the pool; its a lease/purchase and bank-owned. Each year, the Board must decide whether to appropriate (set aside in the next fiscal budget) money to make the lease payments. The Board could decide not to appropriate these funds. What would be the result? The pool would go back to the bank and they would be stuck with it. What would they do with it? I dont know, but it would no longer be our problem. If the Board didnt appropriate money to pay the lease would it negatively impact the citys credit rating for awhile, even though its a lease/purchase and not a loan? Probably. Because even though you were never given the opportunity to vote on it, and even though its not technically considered debt (because it isnt backed by the full faith and credit of the municipality), attorneys and financiers created and structured lease/purchase agreements to their benefit. They assume the risk that a Board might one day decide to not appropriate money, thereby allowing investors to charge higher rates of interest than we would otherwise pay were the pool acquired with the revenue from a voter-approved bond. Want more information? Google Certificates of Participation. Pools are a great community asset, provided you set aside money on an annual basis and THEN build one, rather than spending millions on interest. Would my kids miss the pool? Definitely. Would the bank sell it to someone who would keep it open each summer? I have no idea. OPTION 3 - SELL THE WATER / SEWER SYSTEM Im an advocate of private competition, but make no mistake! Selling our water/sewer system would not introduce competition into the equation. It would merely be a choice between being at the mercy of a government monopoly or being at the mercy of a private monopoly. Who would do a better job? I dont know. I only know that at the moment there is a lot of room for improvement. If youre interested in exploring this option, a company called Missouri American Water is the place to start. OPTION 4 - SEVEN YEARS OF PAINFUL CUTS In order to pay off our existing debt, this option would involve a 20% on average reduction in annual spending for seven years across all departments - streets, water/sewer, public safety, parks, etc., and applying the unspent revenue to eliminating our existing debt. This option would very likely result in some city employees having to seek employment elsewhere, scaling back some city services and events, and planned improvements being delayed. Without running extended numbers past better minds than mine, Im not even sure our existing debt could be eliminated in seven years. We face additional and necessary repairs and improvements to our infrastructure - each of which will require borrowing even more money due to our having a limited budgetary capability to set the revenue aside to pay for them. We already lose that revenue to existing interest payments. OPTION 5 - RAISE TAXES Real estate taxes. Sales taxes. Are you comfortable giving the city more money when we dont seem to spend the money we already receive in a responsible manner? Im not, but am open to anything. OPTION 6 - REFINANCE OUR DEBT AT LOWER RATES IN COMBINATION WITH THE ABOVE Any solution should involve refinancing our existing debt to lower rates. Options are already being explored. But, this will not solve the underlying problem, i.e. our habit of borrowing in order to make major improvements, rather than planning well-ahead and saving for major improvements. OTHER FACTORS: Economists whose track records I respect warn of major pullbacks in the stock market and the economy in the near-term. If these pullbacks come to pass, they will likely decrease city sales tax revenue and increase the need for city services, both to an unknown degree. If nothing else, our annual budget should reflect this possibility. If a pullback doesnt occur, any unspent revenue could be applied to our debt. Additionally, there are those who would argue that the interest paid on the present value of borrowed money is offset by inflation applied to the future buying power of savings, therefore it is good to borrow now while rates are low. This is merely the pitch of a well-dressed money salesman, steeped in fiscal nonsense. This attitude has enabled the acquisition of ever greater amounts of debt, and not fiscal discipline. CONCLUSION: Our future is yours to decide; its not mine to decide. My purpose is only to try to make you aware of the problems and start a conversation to help find solutions.
Posted on: Sun, 24 Aug 2014 01:58:57 +0000
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