Mayor Brian Smith recommended a review of the city of Waupaca’s debt policy as part of the Common Council’s discussion about how to finance future capital projects.
“The members of the council are different than when the policy was put in place,” he said during the Feb. 4 meeting of the Common Council.
During that meeting, the city’s financial adviser, Brad Viegut, of Robert W. Baird & Co, Inc., presented three different financing scenarios for funding projects in the city’s draft five-year capital improvement plan.
The five-year total project cost for tax supported borrowing is about $6 million.
Under the first scenario, all of the projects in the draft plan would be financed. In the second and third scenarios, the number of projects would be reduced.
In the case of the third scenario, the only projects which would be financed would be a new public works facility – estimated at costing $2 million – and a gym project in the Waupaca Recreation Center.
“In almost every case, we get high on the debt capacity for a couple years and then it drops down,” Smith said before recommending the council review the city’s debt policy within the next couple months to see if the current council is comfortable with the policy.
The guidelines of the city’s debt policy include:
• Tax supported general obligation debt should not exceed 2.5 percent of the city’s equalized valuation (excluding tax incremental value). The city’s available debt capacity in this area is $5.2 million.
• The total general obligation of the city should not exceed 3.75 percent of city’s equalized valuation (excluding tax incremental value). The city’s available debt capacity in this area is $389,530.
• The city’s annual debt service on tax supported debt should not exceed 15 percent of of the city’s total general government operating revenue. The city is currently exceeding this part of its policy by $282,644.
“The policy is here to help the city,” Viegut said.
Some counties have a requirement in their capital policies that a portion of capital projects should be funded with cash, he said.
“Once debt is in place, it is usually there for 20 years,” Viegut said.
Smith said some of the items in the city’s draft five-year capital improvement plan would be financed through grants or the city’s operational budget.
“It’s not anticipated that all of it would be done with a borrow, but obviously, the majority would be done that way,” he said.
The mayor said a review of the city’s debt policy would also give the city an opportunity to look at how other communities came through the economic downturn.
“On a monthly basis, I meet with the department heads,” Smith said. “I’ve personally come to the conclusion that the Public Works projects, the Main Street project, are very important projects. The gym project (replacing the floor in the Augie Austin Gym) has to be done or we have to shut down the old gym.”
He said, “I believe Public Works is a very important project, and I don’t want us to stop thinking about it. I don’t think we’ll do it in the next five years. I think we’ll do it in year six or seven, when the debt falls off. (Public Works Director) John will tell you, you have to make some repairs to the old buildings.”
Smith said if the city borrowed for a Public Works facility and the gym project, it does not look like the city would have borrowing capacity, under its debt policy, to do anything else.
“If a truck goes down, and it can’t be fixed, we can’t buy a new one,” he said. “We do have to look at maintaining the assets we have now and looking forward, planning for assets in the future. I think we need to scrutinize all the projects to make sure they are something we’re going to do in the next few years.”
His fear is if the city borrows for everything in the draft capital plan, it will not be able to do anything else, particularly in an emergency, he said.
“We’re going to talk about the debt policy,” Smith said. “Then, we’re going to start talking in the summer, late summer, about the 2015 budget, and I think we’ll incorporate capital requests in the summertime, before we get to the actual budget. Maybe we’ll look at doing a borrow late this year or early next year, if it looks like we can afford it and it makes sense to do that.”