CIP close, but within, debt margin

CIP close, but within, debt margin

(Oct. 10, 2014) If anything, the city’s Capital Improvement Plan (CIP) is like a Christmas list, at least insofar as being a list of things one hopes to acquire.

Most children’s letters to Santa, presumably, don’t include items like $12 million in sewer replacements over the next five years.

The city’s CIP, as presented at this week’s City Council session, hasn’t changed much over the version presented last year as part of the city’s strategic planning process. Despite the still rather large total price tag – $118 million – city officials stressed that nothing is absolute.

“Some of this may be moved or delayed,” said Mayor Rick Meehan. “It was part o the strategic plan that we identify and list all of these. You’re going to see some of these approved, and some move up and down this document as time goes by.”

Under the current five-year CIP, the city has scheduled $118 million in capital projects out through the end of the 2018-2019 fiscal cycle. Such projects can be paid for through a multitude of funding mechanisms, some of which present less of a fiscal challenge than others.

In a number of cases, the city will be able to support specific improvements by paying with the user fees or taxes associated with those improvements, or borrowing against the projected future income from those fees and taxes.

In the case of the wastewater improvements, for instance, the city is planning to borrow $3 million per year, beginning next year, which will be repaid using the Wastewater Department’s own revenue stream.

Most of this consists of the roughly $11 million that the city collects annually in per-fixture wastewater impact fees.

In other cases, however, capital improvements depend not on the city’s independent “enterprise” funds, such as wastewater, but rather on the General Fund, which is supported by property taxes and most other nonspecific revenue sources.

Either money is borrowed by leveraging bonds against the General Fund, or the city embarks on “pay-as-you-go” projects using General Fund money as it becomes available.

Under the current CIP, the city plans to borrow more than $49 million in the next five years, of which $16 million will encumber the General Fund, and the rest supported by dedicated user fees. The city currently has outstanding debt of around $96 million.

No General Fund borrowing is slated to happen this year, but the CIP calls for $5.6 million of General Fund debt in 2016.

Roughly $4.3 million o this will be for the renovation and expansion of the Ocean Bowl Skate Park and other recreation facilities between Third and Fourth Streets, a long-awaited project made possible by recent deed cession granted to the city by the county, which owns the land.

Another half-million will be borrowed for improvements to the downtown Lifesaving Museum, and a further $840,000 will go for the replacement of the Whiteside Building, the city’s downtown public works warehouse which houses the trams and Boardwalk maintenance supplies.

Debt, and thus the extent of capital improvements, is limited by three standing criteria.

First, total debt as a percentage of the city’s assessed tax base can be no more than three percent. It currently stands at 1.08 percent. Secondly, the city must be on track to retire 65 percent or more of its debt within 10 years, and currently stands to pay off 78 percent in the next decade.

Finally, total General Fund debt service – the combination of both interest payments and payoff of principal – must consume no more than eight percent of the General Fund annually.

This is typically the controlling requirement for the city, as the amount of the General Fund eaten up by debt repayment has grown in recent years to 6.85 percent – still under the limit.

However, Council members Brent Ashley and Margaret Pillas asked – as they have previously – for the city to provide a projection of its debt payments assuming that all of the money the CIP proposes to use is actually borrowed.

“I need to know what we are going to look like by 2019 if we actually do [the CIP],” Pillas said.

The city’s payments on its current debt are projected to peak in 2017 at a cost of around $5.25 million to the General Fund, according to data provided by city Finance Director Martha Bennett. Given the city’s current annual budget, the eight percent cap is around $6 million.

This would mean that any bond issue in 2016 would have to incur additional debt service of less than $750,000 in order for the city to stay within its debt guidelines.

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