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HomeMy WebLinkAboutIR 7062 INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 7062 ,0TEA1,4 foj?r To the Mayor and Members of the City Council November 5, 1985 4 X �Q� Subject: '071, FINANCIAL ISSUES RELATED TO 1986-88 CIP Since the presentation of the preliminary 1986-88 Capital Improvement Program to the City Council on October 1, 1985, several questions have been raised concerning the level of debt and the projected financial impact associated with the new bond pro- gram. This report will provide additional information regarding the financial assumptions and calculations which were summarized in Informal Report No. 7053 and should bring some of the financial issues into sharper focus. I. SIZE OF BOND PROGRAM General inflation, a shift in the types of capital projects needed (i .e., more street projects), and population growth all contribute to the $20 million dollar increase over the 1982 bond program. The proposed program includes $115 million for streets (76.6% of the total program) . In 1982, the program con- tained $77.285 million for streets, which was only 59.4 percent of the total bond package. While inflation has caused street construction costs to increase over the last several years, the number of projects also has grown to maintain and/or reconstruct a decaying infrastructure and to provide capital projects made necessary by rapid population growth. The City's population has increased 15.9 p6rcent since 1980, with a 5.75 per- cent growth in the last year. The most recent population estimates show Fort Worth's population will increase by 82,761 persons between 1960 and 1990, a jump of 21.4 percent over the ten-year period. While all these people will not create development on the City's fringes, they will impact the street system and place demands on City services. At the same time, they will add to the City's tax base. Unfortunately, it is difficult to predict the exact positive effects of increased population on property tax revenues. We do know that new residents will help spread the tax burden over a greater number of people and, hopefully, will increase commercial and industrial development. The size of the proposed $150 million capital improvement bond program should be placed in perspective with the recent general obligation bond programs in Fort Worth. Fort Worth's 1978-81 program totalled $92,500,000, while the 1982-85 program totalled $130,000,000.* Fort Worth's challenge of dealing with a decaying infrastructure and simultaneously building new capital projects to encourage growth has not diminished. Rather, these capital needs appear even more critical in light of such events as the recent study by the Mayor's Select Committee on Streets and Drainage Infrastructure and continued population growth and expanding development on the City's fringes. *As a point of comparison, the City of Dallas bond programs have increased at a much more rapid rate than Fort Worth. Dallas' 1978 bond program totalled $234,920,000. In 1982, Dallas voters approved a $247,070,000 program. The proposed program that will be presented to the voters in the next bond election totals $428,060,000. LISSUED BY THE CITY MANAGER FORT WORTH, TEXAS -INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 7062 - P.2 fop) To the Mayor and Members of the City Council November 5, 1985 O) Z5 2�1 1 RI Subject: FINANCIAL ISSUES RELATED TO 1986-88 CIP 1473 11. TIMING OF THE BOND ELECTION Throughout the bond program development process the staff has targeted February 4, 1986 as the most suitable date for the bond election. Postponing the bond election has its advantages and disadvantages. Moving the election to the fall of 1986 would keep debt service payments from increasing in the 1986-87 fiscal year. Delaying the sale of approximately $68.5 million would save $3,827,392 or 2.78 cents on the tax rate. However, projects that would eliminate poten- tial life-threatening problems would also be delayed six to twelve months (Como Dam and Paddock Viaduct), and the citizens would continue to see deteriorating street and storm drain systems. The County's uncertainties over their bond election could also affect the success of the City's election. We believe a county election immediately be- fore the City's would most likely hinder the City's success. Increasing the time between elections would appear to improve the City's chances for a successful election, although we can only speculate on how timing will affect voter preferences. op", It appears that March, July, August, September, or December are the best possi- ble months in terms of voting machine availability (see attached schedule). The county will need the voting machines for the May primaries and, if necess- ary, in June for the runoff elections. If elections are contested, the results could be impounded for several more weeks. A November bond election would com- pete against statewide elections. These highly politicized elections, most notably the governor's race, might cause confusion and prove detrimental to the City's bond proposals. Although the City could work out the logistics of postponing a bond election, we already suffer from a serious shortfall for new development projects. Com- munity Facilities Agreements (CFA's) already in the system total $14,936,516. These are documents that are either in the T/PW development engineering section or in the Development Department ready for signing of agreements and prepara- tion of Mayor and Council Communications. Available funding under the current bond program totals $14,,679,211. This situation means that if a developer wants to begin the Community Facilities Agreement process next week, for example, the City will not have bonds available to accommodate developer re- quests under the current bond program. The currently available CFA bond funds are expended on a first-come, first-served basis. If a developer makes an application and quickly processes it through the system, he could get funding before someone who initially files earlier but has not completed all the re- quirements. Without additional bond fund approvals, once the $14,679,211 in CFA funds have been expended by the City Council , new development funding could not continue. Bond funds allocated to specific projects funds are expected to be depleted by August of 1986. The Transportation and Public Works Department's staff be- lieves that waiting until later than the February election date would guarantee depletion of existing funds and halt the street and related improvements bond LISSUED BY THE CITY MANAGER i FORT WORTH, TEXAS 4NFORMAL REPORT TO CITY COUNCIL MEMBERS No. 7062 - P.3 I QR? To the Mayor and Members of the City Council November 5, 1985 Z3 Subject: FINANCIAL ISSUES RELATED TO 1986-88 CIP program. If the city bond election was postponed until March or early April , 1986 to avoid conflicting with the county's bond election, the streets and related improvements program would most likely continue uninterrupted. If the election were postponed until July, 1986 or later, there is a strong probability that the program would be completely halted. III. TAX RATE ADJUSTMENTS Informal Report Number 7053 indicated the projected impact of the $150 million bond program on the tax rate. It stated that the program would add 2.8 cents to the tax rate in 1986-87 and 4.8 cents in 1988-89. These stated increases are above what the tax rate would be if there were no more bond sales and the City only paid debt on current obligations (Current general obligations now total $351,126,976, which is total general obligation debt less self-supported Water and Sewer debt.). Compared to the current rate of 29.29 cents, the rate for 1986-87 would be 0.69 cents less and the 1988-89 rate would be 1.65 cents more. These differences are explained on the chart titled "Projected Debt Service Impacts." IV. DEBT SERVICE INDICATORS The 1986-1990 Long Range Financial Forecast presented several financial trend indicators related to debt service. These projections were predicated on reve- nue and expenditure re-estimates made in early 1985 and on economic/demographic data compiled during the same time period. After the forecast was completed in May, several assumptions were re-examined and revised. For example, the fore- cast used conservative estimates for interest earnings in the debt service fund. A more recent examination, using an improved and more sophisticated approach to forecasting these interest earnings, shows them to be substantially higher. These earnings, when applied against debt service requirements reduces the General Fund tax-supported contribution to debt service payments. These different methodologies are explained in ATTACHMENT I. The percentage of the General Fund budget required for debt service has also caused some concern. The ratio of debt service payments to operating expendi- tures is within what bond rating agencies consider the high range (15 to 20 percent) . In 1985-86, the debt service payment from the General Fund is 18.64 percent of the total General Fund budget. Comparing these percentages over time and against other cities can become confusing because the same departments and programs are not always classified as a part of the General Fund. For example, over the last five years Fort Worth has removed the Golf Fund and the Solid Waste Fund from the General Fund and has created separate enterprise funds. These services are usually excluded in calculations of general expendi- tures. Including these departments in the General Fund for 1985-86 would reduce the percentage of debt service payments to 17.27 percent. The "Handbook on Evaluating Financial Condition" published by the International City Manage- ment Association, states that exceeding the twenty percent limit can be a "potential problem." Other debt indicators may also be used to indicate if debt levels are excessive. LISSUED BY THE CITY MANAGER FORT WORTH, TEXAS 'INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 7062 - p.4 ,%�I G Opp 0 To the Mayor and Members of the City Council November 5, 1985 _X Subject: FINANCIAL ISSUES RELATED TO 1986-88 CIP Although the ratio of debt service payments to the General Fund operating bud- get is projected to remain in the high range, other debt indicators used in the financial forecast are more positive. Two of these are: (1) Long Term Debt as a Percentage of Assessed Valuation - bond rating agen- cies recommended that net direct long-term debt not exceed five percent of assessed evaluations. Fort Worth's ratio has remained close to the 3% level since 1978. It is currently at 3.04%, down from a high of 3.7% in 1977. (2) Overlapping Long Term Debt as a Percentage of Assessed Valuation - over- lapping debt is important because it measures the entire community's tax base and its ability to repay the debt obligations of all its local juris- dictions. A warning trend is exhibited if the overlapping debt is in- creasing as a percentage of assessed valuation. Fort Worth has maintained a low percentage over the last nine years and recent trends over the last five years have shown a drop from a little over three percent to just above one percent of assessed valuations. OPWI We believe the last two indicators are more useful in examining long term debt than the percentage of debt compared to the operating budget. These indicators give a clearer picture of the community's fiscal pressures from local taxing entities. These pressures are critical indicators in determining the com- munity's long-term ability to repay outstanding debt obligations. These indi- cators would show an even stronger position if property values on the tax roll were approaching one hundred percent of market value. Most of the other large Texas cities have their tax rolls approaching the one hundred percent level . Recent estimates show that Fort Worth's property tax rolls reflect closer to eighty percent of market value. V. TIMING OF BOND SALES The debt service projections in the chart titled "Projected Debt Service Impacts" assume that fifty million dollars in bonds will actually be sold in each of the next three fiscal years. The City could adjust the tax rate impacts up or down in these years by selling bonds on a different timetable. For example, the 1986-87 fiscal year could see bonds sold for only a few criti- cal projects such as Lake Como Dam, Paddock Viaduct and street projects where we are committed to match state and/or federal funding. The reduced bond sales would reduce debt service payments in the 1987-88 fiscal year. The staff routinely assesses many different elements before recommending when to sell bonds. These include bond market conditions, interest rate projec- tions, and urgency of funding requirements. If the bond program is approved by the voters, the staff will continue to look closely at the timing of bond sales from the 1986-88 Capital Improvement Program. -ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 7062 - p.5 November 5, 1985 To the Mayor and Members of the City Council Sub ect: FINANCIAL ISSUES RELATED TO 1986-88 CIP 10711 i VI. CONCLUSION As these analyses show, over the long term Fort Worth will have revenue/expen- diture imbalances that may require tax rate adjustments. The current tax rate is relatively high because of an imbalance of residential properties compared to the commercial/industrial tax base. A possible solution to the problem lies in encouraging a healthy mix of residential , commercial and industrial growth. One important way to encourage economic development is through the Capital Improvements Program. The proposed $150 million bond program attempts to address the issue of encouraging economic growth and at the same time maintain- ing our current infrastructure. Specifically, economic growth may be encour- aged by projects such as the Paddock Viaduct repair, the City's matching funds for new development, and the improvements to Camp Bowie's brick streets. The Paddock Viaduct is a vital link between the downtown area and the North- side. Maintaining this link will improve traffic flow and allow easy access between the expanding Stockyards District, Northside residents and businesses, Fort Worth Meacham Airport, and the City's downtown. This project is estimated to cost $3.5 million. The City's participation in new development will contin- ue the emphasis on encouraging developers to build and businesses to locate in Fort Worth. Approximately $31,495,000 will be earmarked for these unspecified projects. Finally, the Camp Bowie re-bricking project will continue improve- ments along this street. These repairs will help restore the historical character of the street surface and will improve the aesthetic value of the neighborhood. Hopefully, these enhancements will encourage economic develop- ment and commercial activity in those areas along Camp Bowie that are zoned The citizens' quality of life will be enhanced through bond projects such as libraries, parks, Nature Center improvements, Botanic Garden improvements, and hiking and biking trails. These projects blend together to provide educational and recreational opportunities that Fort Worth has a responsibility to provide. The 1986-88 Capital Improvement Program is a critical element in our overall economic development strategy. The program will help broaden and enrich the tax base of the City of Fort Worth. It will also help enhance the quality of life for Fort Worth citizens. glas Ha m?an City M City Manager Ph DH:sb Attachments LISSUED BY THE CITY MANAGER FORT WORTH, TEXAS