#04 - City Debt Discussion - Laserfiche WebLink

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Staff projections for this discussion are based on the most recent updates to the streets and infrastructure CIP, provided by City Engineer Jack Griffin in June 2024. These are early projections and models and should be reviewed as such. Funding sources and need can change year-to-year. Projects are budgeted in 2024 dollars, so inflation will also affect future projections. For simplicity’s sake in developing the model, the following assumptions were made for new debt; interest rate: 4%, term: 15 years, and flat-line payment schedule. Projects beyond the 10-year CIP are estimated at an average of $7.5 million per year, based very roughly on the draft CIP averages. [Please refer to charts to review projected debt at this time.] Based on the above, I estimate that our debt level will continue to hold at the $50-$60 million level for the next 20 years and beyond without a change in practice. The alternative model I reviewed assumes instead that we move to “35% Cash” model; aiming to provide a minimum of 35% cash funding to all projects by 2034, starting at 3% in 2025 and increasing steadily from there. I used this particular model because I like the balance of using “past, present, and future” dollars to fund projects. So, a street project in 2034 may be funded as follows; Past Dollars Present Dollars Future Dollars Prior Year Infrastructure Levies (35%) Special Assessments (30%) Future Debt Levies (35%) Again, actual funding of any individual project will vary greatly depending on a number of factors and this model is simply for discussion and comparison purposes. In looking at projected debt balances using the above model, I estimate we would level out at closer to $30 to $40 million in debt. This is, of course, approximately 2/3 of what we would have in the “all debt” model, given that we would be funding roughly 1/3 of all projects with cash. To start funding projects with cash without decreasing our current cash (and therefore our Liquidity Ratio), one option would be to implement a separate Infrastructure Levy for street improvements. We currently have a General Fund Levy and Debt Service Levy. A specific levy would set the funds aside for that purpose and provide transparency regarding the use of those funds. Money could not be transferred to other funds without a resolution of Council. This is similar to what we do with the Vehicle Fund, the new Street Maintenance Fund (used for smaller street projects), and the proposed Fire Equipment & Project Fund, but we implement those with transfers out of the General Fund Budget. This method also provides clear intent for those funds to rating agencies and bond purchasers. Incorporating a comparison of the projected Levy and Tax Rate over time is a bit more complicated because of all of the variables and additional assumptions about growth. Instead, it may be helpful to think of it as follows. The current portion of the tax rate associated with the Debt Service Levy is 8.5% (the total tax rate is 24.55%). That debt service tax rate is expected to grow in the coming years in the no-cash model, possibly even surpassing 14% in the next decade. The “debt service PLUS infrastructure levy” tax rate may increase slightly faster, but then is expected to decrease over time as the fund grows and debt service shrinks. In comparison, the no-cash model would likely level out at a higher rate and would be subject to more fluctuations depending on interest rates. Below is what the levy might look like for next year if we started to incorporate an Infrastructure Levy. 2024 2025 (example) Levy $ Tax Rate* Levy $ Tax Rate* General Fund Levy 5,998,212 17.26% 6,250,000 17.36% Debt Service Levy 2,923,830 8.41% 3,000,000 8.33% Infrastructure Levy n/a n/a 500,000 1.39% Total 8,922,042 25.67% 9,750,000 27.08% * Tax Rate prior to Fiscal Disparity distribution. Effective Tax Rate after Fiscal Disp. 24.547% FD est. $400,000 26.92% Tax Capacity $ 34,758,875 $ 36,050,449