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March 18, 2003 |
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To: Board of Selectmen From: John Simko, Town Manager CC: Cindy Hanscom, Bookkeeper Date: 3-18-03 Re: Proposed Town Bonding Package for Infrastructure I have prepared the following list of bonding projects for the FY2003-2004 budget, with some discussion for future projects as well. In order to make these projects occur, capital must be injected at the local level. At this point in time, the best way to provide that capital, in my opinion, is to break up the cost over time through bond financing of the projects. Considering the Town's large borrowing capacity and the current low interest rates, it makes sense to borrow at this time. The three greatest considerations should be: (1) is the given project worth doing for this cost?, and (2) can the Town afford to pay back this money over time, and (3) what consequences do we face with adding to our current debt load? Town's Current Financial Status The Town of Greenville's current debt service includes the following outstanding bonds: 1989 Sanitary District Loan Matures 2015 $323,339 left to pay The total outstanding debt, as listed, is $550,949. The financial risks involved with borrowing funds for projects include the loss of revenue to pay back such debts: the current tax base for the Town of Greenville is more diversified than it has been in several years, due to the significant decrease in the total tax value of the formerly #1 and #2 taxpayers – Greenville Steam Company and the Greenville Housing Corporation. Since these two entities have had their assessed values decreased to historic lows, I do not believe they can be reduced by any significant amount in the future. Therefore, I believe our assessed valuation for the Town will either remain constant or more likely continue to expand over the next decade in response to growing land scarcity, the popularity of Greenville as a destination for wealthy second home owners, and the planned business growth within the Industrial Park and the Airport. Other revenue, such as from surplus, is also at a historic low at this time, due to significant appropriations from surplus over the past two fiscal cycles. Therefore, we will not be appropriating from this source any significant expenditures in the coming years. We will only stay constant or go up in surplus – I do not see us going down any further in this account. Other revenue, such as state revenue sharing, may decrease some in the future due to the economy and/or possible legislative action, but again I would submit that this year will be one of if not the worst years for revenue sharing in a decade. State sales tax returns are down, so the entire “pie” from which Greenville receives a “slice” of revenue is smaller. There are no proposals on the table at this time to significantly alter how revenue sharing is dispersed: if revenue sharing survives both the budget crisis for the State of Maine and the proposed tax reform effort in this legislative session, it will survive anything which the next ten years will see. Overall, even with the prospect of war, most economists predict a rebound for the economy within the next 18 – 24 months. When this occurs – and only another terrorist attack, natural disaster, or prolonged conflict in the Middle East should derail it – the various revenues received by the Town should rebound as well (boat and car excise tax, revenue sharing, valuation growth from new construction). In short, I believe we are at or near rock bottom: we cannot get much worse than this. I believe we can handle additional debt service over time for the projects listed below. The only other considerations would be our cash flow and our ability to meet the local government means test for the financial assurance piece of our compliance with the DEP for operation of a landfill. First, the cash flow: the limits of our current unappropriated surplus will have a much greater impact on cash flow than will additional debt service. If anything, debt service can assist in the management of cash flow as annual payments can be designed to be paid at times of optimum cash in the bank (e.g., November or December). I do not foresee any disruption of cash flow through the acceptance of additional debt service. In regard to the DEP landfill local government means test for financial assurances, I believe we continue to have great capacity in this regard. Below you find calculations for how we passed these tests last year, how much “capacity” we have to meet each threshold in the future, and what the current budget describes. Test: 1 Cash divided by expenditures of .05 or greater Cash $1,485,892 / expenditures of $4,360, 475 = .34 If cash were to decrease by 30%, or $445,768, and if expenditures were to increase by 30%, or $1,308,143, then the new calculation would be Cash $1,040,124 / expenditures of $566,862 = .18, which is still greater than .05 Such increases in expenditures and decreases in revenue would be unlikely in a given year. For example, the change from the listed year (2000) to the most recent audited year (2001) was a 17.27% (or $256,618) decrease in cash, and expenditures also increased by 5.49% (or $239,507), yielding a new dividend of .26, still far greater than .05. Test: 2 Debt Service expenditures divided by total expenditures of .20 or lower. 2000: debt service expenditures $118,922 / total expenditures $4,360,475 = .02 2001: debt service expenditures $102,294 / total expenditures $4,599,982 = .02 For this to exceed .20, with total expenditures remaining constant, debt service expenditures would need to grow to over $919,996, or an increase of 8.9936%. Were total expenditures to increase (which they likely will), the dividend of this function will likely decrease. Therefore, it will be difficult for Greenville to NOT meet the terms of this standard. Test: 3 Closure and Post-Closure costs 43% of Town's total annual revenue. 2000: Estimated total closure & post closure costs $757,650 / total revenue $4,443,163 = 17% 2001: Estimated total closure & post closure costs $809,350 / total revenue $4,329,291 = 19% Although total closure costs will likely continue to climb due to inflation, and total revenue has gone this year, I believe that total revenue will fluctuate with the economy. Still, if closure costs were to grow by 30%, and revenue were to drop by 30% from the 2001 numbers, the result would still be a dividend of Test: 4 Not operating at a deficit of 5% or more of total revenue for two years. Operating surplus June 30, 2002 $270,691 Operating surplus June 30, 2001 $81,046 Operating surplus June 30, 2000 $133,800 We may not run in a 5% deficit (or higher) for BOTH of the past two years. Our auditor feels this past year is an anomaly which will not occur next year (likely brought on by the use of unappropriated surplus for the public works facility). These parameters are not directly affected by additional expenditures for debt service, although projects requiring debt service may also utilize some surplus as part of their overall financing. Considering the limited nature of our current unappropriated surplus, I do not believe we will be expending from this source much over the next decade. Decreasing revenue is tied closely to the economy, which can only improve over the next decade, I hope. With these comments stated, I believe that our current long-term debt schedule could absorb the following bond projects without jeopardizing our landfill financial assurances or our cash flow. The projects are as follows: Road Improvement Bond: Road Base Improvement - $200,000 This bond would pay for significant road base improvement over approximately 8/10th mile of the Scammon Road, and pavement reclamation (grinding) on Leisure Life Road and Cemetery Lane. Pavement would be applied over these bared road surfaces, as well as shimming and/or overlay on the following roads: McAfee Street, rest of Cemetery Lane, Franklin Place, Spruce Street, Dorr Street, Doan Street, Crafts Road, and part of North Birch Street. By completing this work, we will NOT be all caught up with our road work. Indeed, many paved side roads will still need attention over the next five years (and beyond), including, but not limited to: Evelyth Hill, South Maple Street, Mayhew Manor, Pleasant Street (partnering with the state), Varney Road, Leisure Life Road, Foss Street, Lincoln Street, and Washington Street. However, as we would be doing a great deal of work all at once, I feel we could use the MDOT local roads money to pay the first year's debt service, and then begin appropriating the debt service amount from local taxation the next year. Therefore, as proposed, this bond would have no impact on local taxation this year (or any other year the Board so chose) IF the annual debt service amount in the first year were kept to $16,600 or less, allowing for the $10,000 payment for a sidewalk extension along Lily Bay Road to McAffee Street.. Wood Composites Incubator Bond: $75,000 This would be the local-share of a $575,000 project in the Industrial Park. The rest will be paid for with grant funds. The debt service would be paid back through a combination of the lease from the tenant and from the taxes recovered through a TIF agreement. This would have a year-one appropriation amount of less than $9,000, an amount which would be carried-forward each year that it is not used. Snowmobile Trail Groomer Bond: $105,000 This amount would be borrowed to purchase a brand-new Piston-Bully trail groomer. The total price would be higher – it would be reduced by a Department of Conservation Capital Trail Grooming Equipment Grant. We may be eligible for another grant from the USDA – I will explore this. The federal grant would pay over $50,000 toward the purchase. At $105,000, we would have sufficient revenue from the trail grant program to pay this back without using ANY local tax dollars (the Town proved it could do this over the past 6 years). There would be no impact on taxes through this purchase. Municipal Building Bond: $327,500 if borrowed in 2003-2004 $263,000 if borrowed in 2004-2005 This amount would be borrowed in two segments – one for the fire department annex construction, cost to be shared with other communities; one for the municipal building renovations, cost soley borne by Town of Greenville. Scenario one would have us move ahead this year and borrow the higher amount. Scenario two would have us do some work this year to the building, set $25,000 aside for the project, and then borrow $263,000 next year. I estimate the annual debt service to be less than $25,000 per year for the life of the bond. I have requested quotes for all of these proposed projects from local banks and the Bond Bank. When I have that information, I will provide it to you. |