CITY DEBT - WHAT DO WE OWE AND HOW MUCH

In an earlier post, I took a look at the city's proposed and historic tax levies and mill rates. A portion of our budget is, of course, our debts. The city has been active in the past few years of paying down more debt in a given year than we take on. In 2007, the city had to borrow a considerable amount of money, due to the new fire station, a road project, and the city's two residential Tax Increment Finance districts. I am going to do my best to break down what the city has borrowed, how much we owe, and why we borrowed the money:

CITY'S DEBT LIMIT

According to the State Constitution and Statutes, no city can have general obligation debts exceeding 1 percent of their current equalized valuation. TIF debt, along with special enterprise debt (sewer, water, etc.) is not included in the 5 percent cap. In the city of Ripon, this is how the formula looks:
2007 Equalized Valuation ($395,100,300) * 5 % = $19,755,015
Current Debt: $10,016,000
Unused Debt Limit as of 1-1-2007 $ 9,739,015
General Obligation Debt issued in 2007: $1,985,000
Unused Debt Limit as of 10-18-2007: $7,754,015

WHAT THE CITY OWES

The city has several existing bonds and borrowings:
GENERAL OBLIGATION DEBT
* 2000 General Obligation Bonds ($2.675 million, interest rate of 4.8%) - This money was borrowed for capital projects - City Hall expansion (Police department) $1,010,000, refinancing some existing debt $890,000 and street work $775,000 We pay about $330,000 on principal and interest each year. The final payment is due September 1, 2015
* 2003 Taxable Notes ($830,000, interest rate of 2.25 to 5.35%) - This money was borrowed to pay back the general fund for advances it made to the Downtown TIF district. The money was used in part to pay back a large obligation to the State Retirement Fund, which almost all cities and school districts face. I could go on for hours on this situation, but I am proud that we are one of the few cities that does not owe the Fund. We pay about $100,000 a year in principal and interest. The final payment is due November 1, 2012
* 2004 General Obligation Bonds ($1.715 million, interest rate of 2.0 to 4.1%) - This money was borrowed to finance road projects from 2004 through 2006. We pay $175,000-200,000 per year in interest and principal. The final payment is due November 1, 2018.
* 2007 State Trust Fund Loan ($696,000, interest rate 5.25%) - This is the money we borrowed for the purchase of 58 acres to add to the Industrial/Business Park. We pay around $89,000 a year in interest and principal. The final payment is due March 15, 2017.
* 2007 General Obligation Bonds ($1.975 million, interest rate 4.15%) - This money was borrowed to pay for the new fire station ($1.23 million) and the reconstruction of Newbury Street ($750,000). Part of the borrowing ($2.860 million) will be used to construct streets and other infrastructure in the Sandmar and Rolling Hills subdivisions, but that debt is counted against the TIF districts and not the general obligation debt. We pay roughly $245,000 a year in interest and principal, though that number will increase to more than $300,000 a year in 2010. The final payment is due February 1, 2027
SEWER FUND
The city borrowed $6.4 million in 2002 to add onto to the Wastewater Treatment Plant. The money to pay back the debt comes from sewer payments. The interest rate (2.75 percent) is low, because we borrowed the money from the State of Wisconsin Clean Water Fund and not on the open loan market. Our annual payments are around $390,000. We still owe $4.529 milion in principal with the last payment due June 12, 2022
WATER FUND
The city borrowed $6.085 million in March 2005 to purchase the water utility from Alliant Energy. The annual interest rate varies from 2.85 to 5.2 percent. We pay around $420,000 a year in principal and interest, with the final payment dues March 1, 2029. The city still owes $5.585 million in principal.
TIF DEBT
The city's Tax Increment Districts have a number of borrowings:
TIF #1 (Downtown) - This TIF has $787,000 due in principal and interest between now and 2012. Annual payments are roughly $156,000, and the TIF generates $152,000 in increment. The TIF will likely borrow $100,000 for the Blackburn Street parking lot upgrade, $100,000 for a downtown beautification project, and $25,000 for a downtown planning study (which is underway). Money to fund these projects can be transferred in from other TIFs, as I have proposed
TIF #2 (Closed) - This TIF is closed, and has collected enough additional revenue to pay the remaining debts, which total $211,000
TIF #4 (Industrial Park) - The TIF will likely take on $750,000 in debt in 2008 to pay for the infrstructure in the new Business Park. The TIF generates $89,000 in tax increment, so the borrowing will be supported completely by the TIF itself. The TIF does owe the general fund $75,000 it borrowed for an improvement around Ripon Pickle. We borrow from the general reserve fund, at times, and charge ourself a lower interest rate than we can get on the open market. It is a perfectly legal process, which can save us money in the long haul on smaller borrowings
TIF #5 (Alliance Warehouse) - The TIF will be used to fund the Stanton Street upgrade in 2008, and generates $131,000 in increment a year, making it very, very successful. Money from this TIF can be used in other TIFs, as I have proposed to the Council
TIF #6 (Highway 23 West) - The TIF borrowed over $450,000 from the general fund to finance the Comfort Suites improvements and the Stoney Ridge subdivision. The TIF also borrowed $1.005 million this past year to pay for infrastructure in the Rollings Hills subdivision and for the construction of a new road adjacent to McDonalds to connect the subdivision to Highway 23 West. The TIF has greatly exceeded our initial expectations, generating $177,000 a year in taxes on almost $8 million in new development.
TIF #7 (Sandmar Subdivision) - Our newest TIF borrowed $1.865 million this year to pay for streets and sewer in the new subdivision. The debt will be paid back as new homes and businesses are constructed on the development.

THE FINAL TOTAL

When you add everything up, the city owes $25,000,000 in total debt to outside lenders (TIF, sewer, water, capital projects, fire station). In 2007, we paid $1.421 million in principal and interest. My policy has been that we never borrow more money than we pay off in the time we need to expend the money we borrow. The formula has worked so far, and the city has been able to do some much needed work in the past four years. Municipal debt can be very complicated, and I now very much appreciate the lessons I learned at UW-Stevens Point when I took that Political Finance class with Professor Dennis Riley. Yes, kids, you do apply what you learn in the classroom in the "real" world. I hope this post was not too complicated, and I welcome your questions and comments.