DEBT STRATEGY REPORT. City of Boise FY 2012/2013 Biennial Budget OVERVIEW

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Julia Pope
5 years ago
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1 OVERVIEW The Mayor and City Council adopt a debt strategy to guide the planning for recognized capital projects and other activities, which may require long-term funding. The debt strategy is a significant consideration in the development and adoption of the two-year budget. Debt Policy Summary The City Council has adopted a formal Debt Policy to direct planning and management for City borrowings. According to the goal statement of the Debt Policy: The City will use debt when appropriate to assure that needed facilities are funded with a longer-term perspective that matches costs to the useful life of the facilities. The City will not issue debt for which the repayment schedule exceeds the useful life of the asset acquired. The City will demonstrate comprehensive, sound and well managed financial policies and practices to provide assurance to investors in City debt instruments of timely payment of all obligations. The City will assure that debt service can be fully supported within current revenues or income for the relevant fund." Debt Capacity and Ratios Capacity - The Idaho Constitution and Idaho State Code establish limits on the kinds and amounts of debt that cities can issue. Code section limits total general obligation debt for cities to two percent (2%) of taxable market value. Boise City s General Obligation Debt Capacity Assessed Market Value (August 2011) $13,559,525,405 GO Debt Capacity (2% of valuation) $ 271,190,508 Less: Outstanding Debt (subject to limitation) $ 0 Debt Capacity $ 271,190,508 The Idaho Constitution requires cities to hold an election and receive a favorable two-thirds majority vote to obtain authority to levy taxes for new general obligation debt (GO debt) and requires a favorable majority vote for some revenue debt. GO debt is debt that is supported by the full faith and credit of the City. Revenue debt is limited obligation debt and is supported by a designated revenue source. Boise City has no outstanding GO debt. The Idaho Constitution allows cities to issue debt without a vote if the debt funded use meets the test as an ordinary and necessary municipal expense, if the debt refinances existing debt, or if the debt has a maturity of less than one year, or if it is issued as a warrant. The State Legislature created the mechanism of judicial validation as an optional means to affirm that debt meets the ordinary and necessary test or is otherwise legally permitted to issue debt without a vote. In May of 2006 the State Supreme Court handed down a decision in the Frazier v. City of Boise case which overturned a lower court judicial validation decision and substantially limited the ability of public entities to issue ordinary and necessary debt. The City also uses judicial validation to validate the legality of annual appropriation debt. III-21

2 All of the City s general governmental purposes debt is accounted for in the Debt Service Fund. Required annual funding to cover the net cost of this outstanding debt is provided through transfers from the General Fund. Debt Ratios In the aftermath of the New York State fiscal crisis in the 1960 s, the International City and County Management Association (ICMA) developed a series of debt capacity indicators intended to indicate a municipality s debt worthiness and capacity. Debt Ratios are indicators that provide a picture of the health of a city s debt program. Net Direct General Fund Debt to Market Valuations calculates the level of taxfunded debt compared to net and gross property values within the City. The ICMA study suggested that ten percent (10%) of market value was a reasonable debt capacity limit for most cities. The State capacity limitation of two percent (2%) of taxable market value speaks only to voted General Fund debt. The ICMA indicator is more understandable to many taxpayers because it measures all General Fund debt voted, limited obligation, and annually appropriated debt. Boise s total is significantly below the ICMA indicator level. TAX-FUND DEBT STRATEGY Debt Ratios ICMA indicator ratios as of August 2011 Assessed Market Valuation (August 2011) $13,559,525,405 Full Market Valuation (August 2011) $16,839,064,690 Boise Population (2011 COMPASS Estimate) 206,470 Total General Fund Debt outstanding (August 2011) $25,650,000 General Fund Debt as a % of Assessed Market Valuation 0.19% General Fund Debt as a % of Full Market Valuation 0.15% Assessed Market Valuation per Capita $65,673 Full Market Valuation per Capital $81,557 Total General Fund Debt Outstanding per Capita $124 Background - In December 2001 and January 2002, the City refinanced a number of debt issues in order to reduce the debt service amount and provide funding for identified capital improvement projects, such as a police headquarters and downtown precinct facility, library branches and fire stations. In 2002, the District Court denied the judicial validation of the proposed debt to construct the new police headquarters facility at 27 th and Fairview. A primary reason for the denial of validation of the annual appropriation debt was the structure of the debt in which the title for the city-owned land would be held in the name of the trustee. And, the Court ruled that should the City not appropriate the annual debt service in any given fiscal year, the land would be conveyed to the trustee, potentially resulting in a financial loss to the City. This potential financial loss is prohibited under annual appropriation requirements. In February of 2006, the City put before voters the question of issuing debt to finance debt to fund construction of new library facilities. Although a majority of those voting were in favor of the financing, approval to issue debt required more than sixty-six percent (66%) to vote in favor. Consequently, the City continues reviewing the options. III-22

In May of 2006, in response to a citizen s appeal, the Idaho State Supreme Court handed down a decision overturning the lower court s ruling in favor of the City in a judicial confirmation proceeding

3 In May of 2006, in response to a citizen s appeal, the Idaho State Supreme Court handed down a decision overturning the lower court s ruling in favor of the City in a judicial confirmation proceeding addressing the question of whether issuance of debt to expand the Airport s parking garage was ordinary and necessary. In January of 2011, H.J.R. 5 was passed to allow local governmental entities that operate airports and regional airport authorities to issue revenue and special facility bonds to acquire, construct, install and equip land, facilities, buildings, projects or other property, without voter approval as long as the bonds are paid for by fees, charges, rents, payments, grants or other revenues derived from the airport or its facilities. GENERAL FUND DEBT OUTSTANDING City Council has elected to seek judicial validation on all currently outstanding bond issues rather than requesting increased property tax support from city residents. More than a dozen successful judicial validations of ordinary and necessary or annual appropriation debt have been issued since The City has also refinanced outstanding debt when it has been financially feasible. Because of the current economic environment s impact on interest rates, the City may choose to take advantage of opportunities for refunding in the next two years. Limited Obligation Debt - These obligations constitute a long-term obligation of the City, limited to General Fund revenues. Revenues derived from other funds are excluded and not pledged. Revenue Refunding Bonds, Series 2001A. The City issued bonds in the aggregate principal amount of $28,445,000, to refinance the Note Refunding Bonds, Series 1996 (Series 1996), originally issued for $34,990,000, and the Court Facilities Revenue Bonds, Series 1993, originally issued for $2,075,000 for the construction of a court building. These bonds are scheduled to mature by December 1, The Series 1996 issuance was a landmark event in Boise s financial history. It allowed the City to change from collecting property taxes to pay for notes that had been issued to pay expenses in the prior year to collecting taxes to pay for current year expenses. County Building Lease. In 2001, the City completed a Lease-Purchase agreement with Ada County for the purchase of the civic center building adjacent to the City Hall facility. The City agreed to make 13 annual payments in the amount of $500,000, subject to annual appropriation by City Council. Upon the final payment in 2014, the City will have the option to purchase the civic center for $1.00. AIRPORT FUND DEBT SUMMARY Airport Revenue Refunding Bonds, Series Parking Facility Project On June 29, 2004, the City issued bonds to refund the $14,200,000 in Certificates of Participation (COP s), Series 1997A, issued on February 1, The original issue provided funds for the construction of a 1,341 space above ground III-23

4 parking facility at the City's airport facilities. The revenue refunding bonds were issued in the original amount of $9,515,000, scheduled to mature on August 1, 2011, and are not callable. The purpose of the refunding was to change language relating to the ownership of the facility. Airport Terminal Facilities Certificates of Participation (COP s), Series 2000 New Terminal Facility Project - The City issued $52,000,000 in COP s on November 15, 2000, to provide partial funding for the expansion and remodel of the airport terminal area. The COP s are payable from Passenger Facility Charges and general airport revenues. The COP s will mature on September 1, SEWER FUND DEBT SUMMARY Wastewater Note Refunding Bonds, Series On March 1, 1999, the City issued $22,145,000 in note refunding bonds to refinance three (3) loan agreements with the Division of Environmental Quality (DEQ) and the State of Idaho Department of Health and Welfare. The first loan agreement was entered into on June 25, 1995, in the amount of $8,300,000 for wastewater design and construction. On November 29, 1995, the second loan agreement was entered into in the amount of $6,800,000. In addition, on May 8, 1996, the third and final loan agreement was entered into in the amount of $7,000,000. The final maturity on the refunding bonds will be March 1, Department of Health and Welfare Loans The City entered into several loan agreements with the State of Idaho Department of Health and Welfare to realign trunk sewer lines. The loans, totaling $9,500,884 in outstanding balance, are secured by pledges of revenue and income from the Boise Wastewater Treatment Facilities. The loans final maturities range from 2012 to HOUSING REHABILITATION FUND DEBT SUMMARY Section 108 Loan (Grant Advance) The City borrowed $2,100,000 from the U.S. Housing and Urban Development Department for the purchase of a hotel whereby the City converted the rooms to low-income single-family rental units. The rental income is pledged as the repayment source. The debt is scheduled to mature in III-24

5 III-25 City of Boise Debt Mangement - Annual Debt Service Fiscal Year County Building Lease Golf Course COP's, Series 1999 General Fund Airport Fund Sewer Fund Housing Revenue Refunding Bonds, Series 2001A Total Parking Revenue Refunding, Series Airport Terminal, Series 2000 Airport Terminal Refunding, Series 2011 Total Refunding Bonds, Series 1999 DEQ Trunk Loan, Series 1992 DEQ Trunk Loan, Series 2002 DEQ South Plant Loan, Series 2006 Total Section 108 Loan , ,935 1,888,670 2,496,605 4,420,488 4,420,488 1,671,943 24,561 76, ,296 2,361, , , ,010 1,885,670 2,493,680 4,421,088 4,421,088 1,673,195 79, ,296 2,341, , , ,730 1,886,045 2,493,775 4,422,088 4,422,088 1,670,738 82, ,296 2,342, , ,884,670 1,884,670 4,427,338 4,427,338 1,669,343 85, ,296 2,343, , ,891,295 1,891,295 4,424,588 4,424,588 1,669,365 88, ,296 2,346, , ,890,380 1,890,380 4,423,838 4,423,838 1,665,963 92, ,296 2,347, , ,886,595 1,886,595 4,424,588 4,424,588 1,664,000 96, ,296 2,349, ,884,956 1,884,956 4,428,338 4,428,338 1,663, , ,296 2,352, ,890,475 1,890,475 4,425,638 4,425, , , , ,888,238 1,888, , , , ,883,375 1,883, , , , ,889,784 1,889,784 58, , , ,887,166 1,887, , , ,891,053 1,891, , , ,886,313 1,886, , , ,887,809 1,887, ,890,141 1,890, ,888,172 1,888, ,886,769 1,886, ,885,663 1,885, ,889, Total 3,500, ,840 47,196,093 49,576,483 5,508,600 14,388,586 39,817,988 59,715,174 20,064, ,461 1,355,000 10,607,333 41,031,793 1,812,076

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Computation of the General Obligation Debt Margin ($ in thousands) TOTAL ESTIMATED ACTUAL PROPERTY VALUATION $134,976,735

Computation of the General Obligation Debt Margin ($ in thousands) TOTAL ESTIMATED ACTUAL PROPERTY VALUATION $134,976,735 Debt Service Funds Long Term Debt and Lease Obligations Provided herein is an overview of long-term debt and lease obligations, which addresses the methods used by the City and County of Denver to finance