Wednesday, October 1, 2014

Council speculates on $3 million facilities bond

2014-05-08

By Pat Cooper

The Peachtree City council is looking at the possibility of floating a $3 million Facilties Authorities bond to catch up with needed repairs around the city.
City manager Jim Pennington said the staff has been taking time in updating the facility bond funding program.
“As you know, on November 7 of last year, the city council approved a reimbursement ordinance pending approval of a bond issue this year. We’ve gone a bit longer than we wanted to, mainly because we have a lot of projects we wanted to get done.”
The city’s FY 2014 budget was approved with a $2.5 million facility bond for city building and infrastructure, with a service life expectancy of 10 years or more. The facility bond list identified 24 bond projects with an annual debt service payment of $299,000. Those projects include: The All Children’s Playground Surface at $42,000; The Clover Reach Pool Demolition at $87,000; the Kedron Aquatic Center Wall Restoration at $182,000; at the Tennis Center Roof Replacement ($175,000), Resurfacing Outdoor Courts ($36,000), Awning Replacement ($32,000), and Exterior Painting ($20,000); and Burn Building Railings/Sealant at $32,000.
Still, major items, like the Kedron Aquatic Center’s wall restoration remained identified and unfunded because the city has not yet pursued the issuance of FY2014 facility bonds. As a result, the expenses have to be programmed into the FY2015 operating budget. As the year progressed, the project list was reevaluated and added to with city building and infrastructure projects, and, correspondingly, the FY2014 Facility Bond list has been updated.
According to Community Services director Jon Rorie, the city’s list for projects have gone by the wayside. Looking at the historical retrospective of the city’s general fund budget, he called it a moving target throughout the year. In 2004, the budget was approximately $22 million, rising to a high of $28 million in 2008 and 2009, before falling off steeply.
“When we see the budget declines it’s because of the economic downturn. It’s where the council had to make some hard decisions. Some things were delayed. We led down the path to balance the budget, but we also inherit future projects which are worse than if we had handled them incrementally.”
Looking at photos of some projects, the city’s baseball/soccer complex for example, showed pitted and cracked asphalt.
The condition of the path is the same as it was two years ago. Similarly, three basketball courts at the Braelinn Recreational Complex as also in need of repairs.
“It’s interesting. We recently entered into an agreement to resurface one of these courts and will do two in-house.”
The estimate to repair the courts was $32,000, but only with a guarantee for three to five years.
“This is a key statement. When dealing with these asphalt surfaces, one thing that was very difficult for us to do, and makes no sense for us to do, is finance a repair that’s going to have a guarantee for three to five years. It didn’t meet our funding criteria.”
Rorie said that anything the city attempts to address using the facilities bond funding has to have at least a 10-year guarantee.
“We’re not spending any of this on those quick little fixes. We’re trying to work on things with a 10-year return on investment.”
Eventually, however, the court repairs will be turning up on a facilities bond project. Projects are assessed on their level of importance, the usage and the return on the investment.
Rorie said that even these numbers were a bit deceiving since the city had made progress on individual line items on a ‘pay-as-you-go’ system, often utilizing city staff to get the projects done.
As the year progressed, the staff has completed some identified projects using funding from the FY2011 Facility Bond funds. Of the 36 projects identified on the $3 million 2011 facility bond list, 30 were funded projects, the city has completed 27 projects to-date. Three projects are in ‘various stages’ of completion.
The Battery Way dock repair project was underway but got stalled as the Lake Peachtree project got stalled, as a result of a damaged spillway dam which the state is negotiating with the county about fixing. Additionally, the tower at the city’s BMX track was identified as part of the 2011 list, but the funding level only rose to the amount necessary to assess the repairs, not to cover those repairs. Another project, the pools electrical upgrades that had been identified, with the monies dedicated, has been put off until the city completes its master recreation plan.
Unfunded projects from that 2011 list also include the fire station 81 parking lot, with a price tag of $50,000 just for the driveway and parking area supplies; the BSC building improvements. Similarly, the BSC parking lot improvements were also on the 2011 list, at a cost of $500,000.
“When we assessed this, we determined that it would give us the 10-year return on investment, but it still would come nowhere near what we need for parking requirements.”
Another project, the Riley Field sewer project, was also postponed- at $39,000- based on the premise that it was a spetic system with limited use and the city’s going to need to convert it to sewer at a later date.
Postponing projects is a double-edged sword, as is either plugging the repair costs into the city’s general fund or floating a facility bond to pick up the tab. On the plus side, the costs are programmed into the general budget and spread over multiple years and general fund programming is good financial planning. On the flip side, the budget is susceptible to economic volatility, limits the city’s ability to catch up with projects and could lead to more costly repairs down the road and purchasing power is reduced annually. Also, with a AAA credit rating to protect, council has to take into consideration the negative perception of debt that might affect interest rates. On the other side of that coin, according to Rorie, is the fact that what credit rating authorities actually look more at the withdrawal of maintenance funds from the city’s general fund, taking big bites of out of the operating funds, as opposed to financing large projects over a period of time.
Staff is recommending a $3 million facilities authority bond, hedging on the plus side for a little liquidity
Assuming a 3.5 percent interest rate on the bonds, said Rorie, who also added that 3.5 is an outside figure and odds were the city could do better by as much as 1.5 percent (“it’s our goal underpromise and over deliver so we’re saying 3.5 percent”), and an even $2.5 million in bonds and closing costs, the total annual debt service payment is estimated at $300,000 over a 10-year period, beginning in FY 2015 and ending FY2025.
“It’s a moving target and it depends on the market.”
City councilman Eric Imker wanted the estimates of the in-source costs and also wanted to see the bond amount reduced to lower than $2.8 million. Imker also noted that the FY2011 $3 million bond was, in part, refinancing of a previous bond with an interest rate of 2.05 percent over the course of 10 years.
“If we’re super conservative and went with the 3.5 interest rate on $3 million bond it would require $610,000 of interest payments over 10 years. I propose that your underwriter’s estimate is conservative and I think we could get two to 2.25 percent. We might wind up doing that with a $2.5 million bond. The total interest is roughly $200,000 over 10 years. To me, getting the impact of getting these projects done for $20,000 a year in interest is so far beyond advantageous that it’s ridiculous not to even consider not doing it this way.”
Imker said there weren’t any projects on the list - even though he wasn’t ready to approve it yet until he had a better handle on what the FY2015 budget was going to look like- he wasn’t willing to justify.
“I’ll stand behind it and say it’s the smart thing to do.”
The council opted to put off approval of the lists or bond funding until after its budget workshops and placed it on the agenda for the second meeting in June.

 

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