Finance
it!
On 11/20 council heard a Northern Trust presentation titled “Stormwater Financing
Analysis”. What Northern Trust floated was the idea of not dedicating $6
million or more each year for Stormwater projects, but instead financing it
with:
$6 million
a year in loan (via bond) payments each year for 30 years for floating $180
million in bonds that would give us $108 million in funds for projects.
$4 million
a year in loan (via bond) payments each year for 30 years for floating $120
million in bonds that would give us $72 million in funds for projects.
They also
floated the concept of Non-Self Supporting Debt Outstanding as
the correct debt figured against the Village EAV. There is ‘only’ $5
million in that kind of debt, because the other $36+ million in debt is paid
for by the Parking Fund (for Series 1999), the
The net
result is hey! We can borrow a bunch more money than we thought and not wreck
our credit rating.
They also
went over spreads, rate lock-ins, and interest only payments to start (yeah, I
know that sounds like sub-prime and Alt-A lending come-ons), and pitched
council on refi’ing Series 1999, 2000, 2001, and 2003A bonds at a lower rate,
claiming that would save $173,134.00 -which is a good deal if true.
I was surprised at the 30 year bond terms. Usually muni bonds are for 20 years or 10 years, but the spokesman said the rates were not much different, although he did not quote any TIC (Total Interest Costs) on comparable 20 and 30 year loans.
Thursday, November 8, 2007
At
the 11/6 council meeting, it seemed like every possible fee and tax was
being raised so flooding and streets could be addressed. But the net
result is $6 million for 2008 funding. To paraphrase Mayor Sandack and
Commissioner Durkin: "That doesn't get it done, we need to do more
faster now, when the money is cheaper, and we need to borrow." Ding! They
get it, but it's at the expense of the municipal center. Muni complex?
New Police, Fleet Services, and Village Hall buildings?So what staff wasn't talking about on the green sheets, is borrowing. Thing is, it's the textbook example of when it is correct, even best to borrow. "Streets and Stormwater" if you will (flooding is the symptom) have to get done as quickly as possible. Everyone on staff and council takes turns bashing the inattentiveness and sloth of the past 25 years of local government; they hid their heads in the sand and ignored two huge growing problems. So now it's time to change that. These improvements are permanent and have every reason to be have payment spread out over 20 years or more. By borrowing, we can fix the problem fairly quickly. This is health safety and welfare at it's most basic.
Replacements for existing structures, even badly needed ones, are next in line, not first in line for available funding.
Commissioner Tully and Schnell expressed concerns that delaying a new village hall creates the same type of problems delaying streets and sewers did; makes it much more expensive to 'fix' later. It's a harsh fact, even with all the new taxes, fees, you name it, our local government will have to make do for a bit, just like residents have done for so many years. waiting for decent streets and decent stormwater measures. Interest costs are at record lows right now. Money won't get cheaper so the time to do it is now.
Problem: we can only borrow so much. The debt ceiling put into place is 3% of the Village EAV. Right now we're at about 2%. The means we could borrow up to $69 million dollars, but we already have $41 million in debt now.
On Tuesday, November 20th, council will hear from bonding providers. This may get interesting...
10/20/07 Budget workshop Saturday. A couple observations for now:
Hybrid Infrastructure Funding
I was saved all of my major talking points. Didn’t have to bring them up at all. Here’s why: Sandack and Durkin have correctly zeroed in on the need for a hybrid of funding sources that includes borrowing in addition to a full plate of tax and fee hikes. Some residents may speak about the fairness of this tax and that fee, and they may have legitimate points, but we don’t have the luxury of time to lock in funding, and the village has to get going on this now. Several projects that should have been done this year were sidelined for 2008. Project deferral cannot continue to happen. As residents, we didn’t pay for what needed to be done for the last 20 years, so now we have to pay for that and what needs to be done once back to square one.
Sandack pushed staff on how much could be done each year; what was the upper limit of staff’s capabilities to finish projects and check them off the ‘To Do’ list. Durkin was right there too. Durkin even commented on how quiet I was all day. They both did a credible job voicing a willingness and a need to focus on job #1.
Ron and Sean, on this very important multi-year budget item, and for this critical resident need, get it. Flooding and infrastructure come first for CIP priority. Period. Everything else: get in line.
Government Center
Staff wants $850,000 budgeted for the first phase of preliminary design (site and layout mainly I think) for the new police station and Civic Center. That’s $850,000 that could be spent on flooding. Tully spoke to not letting another need go unaddressed too long. Speaking as a resident, the past unaddressed needs of residents, that directly and negatively impacts our health, safety, and welfare, is far more important than a new Government Center. Does the Police Department need a new facility? I believe them when they say they do; I don’t have the specialized information as to what the needs and shortfalls of the current facility are.
New Village Hall? I won’t argue the need here, but I will say this: the current facilities are being maintained, and needs are being budgeted for on an ongoing basis. My one car may be 10 years old, but until the maintenance costs more than the payment and maintenance on a new one, I think the old one is a keeper. I’d like a shiny new one with all the go-fasters, but I have college educations that are front and center that are more important.
So it is with the new Government Center. Sandack and Durkin heard what residents said last election loud and clear, and it was not 'build a new muni center', it was 'FIX OUR STREETS AND FLOODING!!!!' We won’t have the cash to do both, we will need to borrow to get ‘bundles’ of infrastructure projects funded and finished as fast as possible, and we should not drain off needed funding for projects that can wait.
I suggested at the budget workshop that the Government Center be a topic for the 2008 Total Community Discussion (TCD 3 or whatever it’s called), so residents can weigh in and be heard. The ECC should also weigh in with ideas that can contribute to reducing the costs of heating and cooling such a large facility, with ideas like passive solar, thermal pumps, green roofing, even small wind or active solar should be on the table as discussion points for design elements. The ADRC should weigh in with suggestions for a design theme fitting for our downtown, and provide some early input. And I think we our village should reach out to some of our many expert architects for ideas and input. This is an item that we do have the luxury of time for. The current facilities may be outdated and in need of replacing, but it needs to be done in a manner that is cost efficient, needs efficient, and energy efficient.
Next up is figuring out how much all of this is going to really cost us. Now, most of what you read about the budgeting process best practices say it starts with the strategic plan (which our local government didn't get around to updating this year) while at the same time getting a rough ball park on what would be in the revenue pipeline; THEN figure out what gets what. Instead, we're relying on last years strategic report (maybe not a bad thing), with the process looking like figuring out what local government wants to do, then figuring out how much we have to pay for it all.
Not many of us have the option of simply letting our boss know how much extra they'll be paying us this year so we can deal with state, county, and local tax and fee increases, so I hope council keeps this in mind when they get down to brass tacks.
10/5/07 The proposed 2008 budget is on-line. The first meeting resdnets can attend is Saturday October20, 2007, at the Public Works office building on Walnut in the Ellsworth Industrial Park.
9/20/07 Watershed Improvement Plan 2007 - Adopted. The full report is in 15 parts.
5/1/07 Borrowing less, paying more interest on Fire Station #2.
The bonds were issued at 4.04%, a bit higher than planned. That's outside of anyone's ability to see. There was a bit of back-patting that the village is borrowing less than $10 million. It'll be interesting to see the final costs of the project from start to finish. That would include all land costs, all preliminary costs, all interest costs. As usual, any change orders will blow out the budget.
Already, we're moving landscaping costs away from the project into Public Works/Forestry, saving some $$ there (my first thought was "aha, hiding some costs", but it makes sense for the Village to do their own work). Expect to see more costs moved away to other budget areas. That makes it harder for the average resident to track, but residents will still get an accurate full accounting of the millions spent. I'll ask for it if no on eelse does...
Tax Increment Financing and Muni Financing
I took off the history and past abuse of TIF's. I'll repost if needed, but there's several excellent starting points for information on TIF available on line now.
TIF's
The downtown (CBD) TIF District: The Good
TIF Districts can be beneficial if managed properly. The Central Business District, or CBD TIF District as it was originally implemented, was a good deal. We put into place a funding mechanism to make some expensive, badly needed repairs and upgrades: new streets, new sidewalks, new sewer, new water, we repiped St. Joe's Creek that runs underneath the downtown, we installed new streetlights and banner holders, new planters and trees, added pedestrian crosswalks, made improvements around the train station, and built a Parking Garage. These were badly needed public works infrastructure projects.
NOTE: The Parking Garage has it's own history. Presented originally as a $12-13 million dollar project, it came in at $21.4 million, not including interest on the money we borrowed.
The infrastructure repair/replacement by itself probably put the downtown back on it's feet and triggered reinterest in the downtown as a destination for shoppers and diners. Remember, three of our most used public facilities have always pulled people downtown: the Library, the Lincoln Center, and the Post Office.
Where we went too far is a few selected real estate deals we did. We tossed millions of borrowed money away in bad deals and left the taxpayer with the tab.
So we started out good and got sidetracked.
The CBD TIF District:The Not-So-Good
TIF districts and TIF bonds are a special burden, and act as a hidden tax on residents of Downers Grove.
Here's the problem in a nutshell: the downtown TIF forces up other taxes to compensate for loss of revenue. The more downtown TIF District area the Village puts in place the more property taxes are diverted away from schools and other local taxing bodies.
The Village gets what should go to others, and keeps it for themselves. That makes Village finances look better, and our school and other local taxing body finances look worse: especially our schools. That's a zero-sum game. The Village borrowed over $51 million dollars to put together downtown TIF projects to date. From 1996 to 2005, the EAV (Equalized Assesed Value) rose 114%, generating almost $68,000 in additional Village tax revenues in 2005.
Here's what, according to Village figures*, was diverted in 2005 from other taxing bodies to the Village:
-
District 58- $300,004
-
District 99- $270,370
-
Public Library- $34,172
-
Park District- $56,096
-
County tax bodies- $93,576
In total, in 2005, the downtown TIF generated a skim of over $759,954 taken away from other taxing bodies into the Village. So that's a great deal for the Village. In 2010 it could be a $1.34 million skim. No wonder the Village loves TIF's, and no wonder our Village finances look rosey right now.
Arguements that TIF's are good for schools:
1- There wasn't anything there to begin with, so there's no reason to say we skimmed the CBD increment from the schools.
Facts: It's a specious argument to point out the tax revenues before. It doesn't matter; there's 2005 tax revenues there now. It's all coming out of the taxpayers wallet/purse.
For every dollar the village takes, the taxpayer simply makes up elsewhere, so it acts as a hidden tax. If the schools are pressed to borrow it costs us as taxpayers $1.30 to $1.40 for every dollar they do borrow.
2- There's a windfall coming at the end: for the CBD TIF that windfall is in 2020. It all gets taken care of then.
Facts: We have to take a shorter look than 13 years out. Chicago has yet to let a TIF District expire; they put on the allowable 12 year extension each and every time one has come up for expiration. Just like the Home Rule Sales Tax (HRST) I expect council will find plenty of "good reasons" to keep the burden. That's cold comfort NOW to students and parents trapped in a system that has badly needed money skimmed away from one local taxing body (the schools) for the benefit of another (the Village).
3- We're already helping. We're giving 58 50% of what they would normally get from Ogden Avenue.
Facts: That's great, and shows that we do have a problem that can be responded to, and also shows we can help when we want to. This deal was worked out on or abouts December of 2000, when Ogden Ave. was getting ready to kick in as a TIF District. According to the 2005 and 2006 Ogden Avenue TIF Report, there's no specific payback involved, but I got these figures from former Mayor Krajewski back in March. These are all Tax Years, they lag a year behind the calendar year (look on your tax bill, you'll see what I mean):
As long as I had BK on the phone, I asked why the Village didn't do a better job getting this kind of info out? After all, it's positive, it shows the Village can help when it can. Work in progress. Whether it's good or bad news, the important thing is that it's accurate.
Correct for Inflation.
We should, at a minimum, link the baseline EAV to inflation. That way, the schools, library, and the park district at least keep pace with inflation, and account for a dollar being worth a little less each year.
Each year, we increase the tax money paid back from the CBD TIF District by the percent rate of inflation; for example, if the inflation rate is 3% for a year, the next year we ratchet up the dollars we give back by 3%.
This one's simple, easy, and fair. The baseline stays a true baseline that accounts for inflation.
Be nice when the Village can.
The Village won't have solid income and budgets every year, but when we do, we should sit down with the schools, talk to them about what they need, and help if we can. The TIF funds that the Village gives to a school can have strings attached, they can be pre-designated for, say buying new computers, or fixing a roof. If the school boards don't want that kind of help, they can explain to taxpayers why they turned down the Village offer of fiscal help.
With the big and long term stormwater funding, there probably isn't going to be a lot of extra cash lying around.
The Ogden Avenue TIF District The Village's goal for Ogden Avenue, which is also a TIF District, is to create another economic engine for Downers Grove. Instead of borrowing money and creating more debt, the Village will try and use more incentives like Home Rule Sales Tax exemptions, and rebating a portion of our share of the regular sales tax based on performance. The Village will also use Real Estate Tax refunds, credits, and abatements. The first two- sales tax rebates- are used by quite a few communities, especially those up and down Ogden Avenue with car dealers. Ours work fairly well with our high retail sales volume businesses, like Luxury Motors and Fry's. We know up front what most of our costs will be, and we only give away Village revenues, so there's no impact on other local taxing bodies. The next are sometimes called Pay-As-You-Go or developer notes. The business does the work and spends the money, and we give them back some money each year after they invest, instead of up front before they do anything. The difference here is we pay afterwards and every year, instead of up front and only once (like the downtown give-aways) so we avoid a bunch of interest payments and debt load. Also, we can link performance to the repayments. If the developer doesn't keep their end of the deal, we are not obligated to keep ours. Overall, both of these are more responsible and less expensive ways to give away money, but we're still giving away money. In particular, if we rebate businesses some or all of their real estate taxes that they had been paying, then we may have to make it up somewhere else, and we're back to giving away other taxing bodies's money in addition to our own. The Ogden TIF District is by far the more responsible way to go, and I think 10 years on we'll know it for sure. Not all bad The basic concept of municipal debt is to spread the cost of expensive capital improvements over an extended time frame, making possible a wider range of taxpayers, who benefit from the expenditure, to share in paying the expense in smaller payments on their tax bills. Our DG Public Library is one example. In 1996 (refinanced at a lower interest rate in 2003) Library Bonds were issued. They allowed for an extensive renovation and expansion of the facility and services. The 2001 Water Bond issue is another example. The $4 million dollar bond is being paid back by water revenues at a clip of about $510,000 a year. Our next project is Fire Station #2. Health, safety, and welfare doesn't get any more basic than fire protection, and EMT/ambulance services. The initial guesstimates put the price tag at about $10 million dollars. The Cost of Borrowing Money In the case of the Water Bond, we'll pay back about $5 million on the $4 million loan. So we pay an additional 25% in order to spread the cost over 10 years instead of paying for it in one year. AAA Muni Bonds (the highest rating) right now are about 3.8% for a 10 year note, and a bit more than that for a 20 year note. If we issue $10 million in debt to build Fire Station #2, and pay for it over 20 years, we'll pay about $723,000 a year, making the total real cost about $14.4 million, so we'll be paying about $1.44 for every dollar we borrow. If we employ advance set-asides we can partly defray the interest costs associated with borrowing money. We knew 5 years ago we needed a new Fire Station; we even bought houses next to the existing station ahead of time- a prudent expenditure that has already reduced the cost of the project. Had we also created a fund and set aside $500,000 a year for those 5 years, we'd have $2.5 million in our Fire Station Fund to get the project going. So now, we would borrow $7.5 million. Our payments over 20 years would be about $536,000, and our total costs drop to about $10.7 million, saving us $3.7 million on the interest costs associated with the project. If we did the lower amount over 10 years we'd save about $5.4 million in interest costs over the life of the bonds. We've borrowed about $64.5 million starting in 1996. We've paid that down to about $50.5 million total debt for 2007. By paying some of the costs up front we could save money on interest costs that, when totalled, are substantial. Total payments will be $14,460,000 for the Fire Station. Note that part the 1/2 cent Home Rule Sales Tax that in 2005 was promised to be used for infrastructure improvements is being used to service bond debt on the Fire Station. Since then the $4.2 million in Home Rule sales tax has been used for a variety of purposes, but never fully for it's promised use.
Municipal Debt:
Reducing the Cost of Borrowing