HomeMy WebLinkAbout13.A.1. Street Overlay Funding DiscussionTO: Mayor and Council
Mark McNeill, City Administrator
FROM: Gregg Voxland, Finance Director
SUBJ: Street Overlay Funding Discussion
DATE: January 12, 2011
CITY OF SHAKOPEE
Memorandum
Introduction
This is follow up from the October 19 meeting on overlay financing and the Capital Improvement
Fund (CIF) and future tax levies.
Background
A simple analogy to set the context for the overlay discussion relating to bonding is:
Joe goes to buy a new car. He can either; take out a loan (bonds) for
5 years and repay the loan with periodic (monthly /annual ) payments
or he can take the money out of his savings (CIF) and make payments
to himself to replenish the savings account over the 5 years. Either
way he is repaying the cost of the car to either himself or someone
else.
The need for overlays
The important part of the following chart is the shape of the lines, not the dollar values. Its
purpose it to show the miles of street that will need overlays in the coming years unless Council
changes the philosophy /policy on street maintenance.
The detail of how the lines were projected is: The illustrative chart below shows the
historic dollar value of streets added since 1980. The projections represent inflation at
4% annually, overlay cost at 25% of new and the same cost as new (inflated) to
reconstruct. Data from prior years is not available. Overlays are estimated to occur at
the 20 year point and the graph clearly shows an increasing cost to maintain streets to
the current standards over the next decade. Reconstruction is estimated to occur at
the 45 year point. Some cities are not doing overlays but are reconstructing just the
pavement at the 30 years point with total reconstruction of the street at 60 years.
/3.R• /,
35
8
3 30
25 •
20
15 •
10
5
Value of Streets
1980 1990 2000 2010 2020 2030 2040 2045
Axis Title
—� Costr uction
per. Mov. Avg. (Overlay)
-4 per. Mov. Avg. (Recon)
Special assessing for overlays
Council recently made the policy decision not to special assess (20 %) for overlays and to use
state aid money to pay for the portion that would have been assessed.
The option of using bonds to pay for the city portion of overlays is therefore not available
without assessing at least 20% of the cost (previously 30% was assessed). The CIF instead of
bonds can be used whether or not a portion of the cost is assessed.
Bonding
The city (non- assessed) portion was previously funded by money on hand (CIF or state aid) or by
a bond issue with future tax levies to repay the bonds. Council always had the option to use the
CIF or state aid instead of issuing bonds. The State Aid Fund has been closed and merged into
the CIF.
Reasons for issuing bonds are;
1. No money on hand to use.
2. Charge future tax payers for the cost.
3. Borrowing is cheaper than paying cash.
4. Levy is outside of levy limits.
5. Maintain a presence in the credit market (like charging some things to keep your
credit line open).
Reasons for not issuing bonds are the reverse of the above 1— 3 and to lower the
outstanding debt of the city to try to improve the bond credit rating for the city. The last
bond issue (2010A in the amount of $1,555,000 for 2010 Recon, 2009 Recon and 2009
Overlay) cost the city about $35,000 to issue the bonds plus about $1,000 per year for
ongoing costs excluding staff time.
Currently, the city has cash to pay for overlays, there does not appear to be a reason to
charge future taxpayers for the overlays, borrowing is not significantly cheaper and
Shakopee maintains a presence in the credit market with bonding for other projects. One of
the reasons cited for not increasing the city's bond rating is the amount of outstanding debt
which includes ISD's overlapping debt.
The illustrative chart below shows the tax levy needed to pay off a $100,000 series bond in 5
years. If overlays are done every year, the result is a $100,000 levy every year. There is no
difference to the tax payer compared to a current levy of $100,000 every year without
bonding.
Rolling
bonds
Issued 2007 2008
2003 20,000
2004 20,000 20,000
2005 20,000 20,000
2006 20,000 20,000
2007 20,000 20,000
2008 20,000
2009
2010
2009
20,000
20,000
20,000
20,000
20,000
2010 2011
20,000
20,000
20,000
20,000
20,000
20,000
20,000
20,000
20,000
100,000 100,000
100,000 100,000 100,000
Tax Levy - Overlay
2011- 2015 Overlay projects in the CIP (capital Improvement Plan) before the assessing
change were proposed as:
2011 2012 2013 2014 2015 2016
Assess 290,000 420,000 60,000 75,000 450,000
CIF - State Aid 130,000 405,000 240,000
Tax Levy - bonded 640,000 785,000 230,000 225,000 1,100,000
Total Cost 1,060,000 1,610,000 290,000 300,000 1,790,000
ds I t IN MAI
The tax levy for bonds typically starts the year after construction.
If all incoming state aid construction money is used for overlays and using CIF fund
balance, the proposed levy below which provides for a transitioning period is:
Non assess
State Aid 527,000 690,000 290,000 300,000 1,480,000
CIF balance 533,000 820,000 (150,000) (200,000) 60,000
__ [7:177-7"
1,060,000 1,610,000 290,000 300,000 1,790,000
Below is a chart comparing the proposed tax levy for overlay projects using the CIF for
financing versus the same projects financed by assessments and tax levy for five year bonds.
Assessments for overlays are relatively small and were recently assessed for one or five year
terms so five year bonds are used to match the assessment term.
800,000
700,000
600,000
500,000
400,000
300,000
200,000
100,000
M
Overlay levy
2010/11 2011/12 2012/13 2013/14 2014/15 2015/16
• CIF Levy
• Bond Levy
Projected Capital Improvement Fund Status
Attachment (A) is the CIF fund as proposed and the fund balance is drawn down $2.7 million.
Attachment (B) is the CIF without overlays, state aid construction and tax levy and fund balance
it is drawn down $1.1 million.
Over the 3 plus decades, except for the $2.6 million transferred to the fire station #2 project, the
CIF has been only used for street related projects and no tax taxes have been levied for it.
Council recently asked about the level of fund balance in the CIF and a $2 million balance
minimum was recommended.
Action Requested
Discuss and give staff direction.
Gregg Voxland
Finance Director
Budgetll /memo 1 12 11 OF
REVENUES:
Tax Levy
Tax Levy - Bond
Special Assessments
Special Assessments Reclamation
Special Assessments Trunk Sewer
Special Assessments Independ Dr
Intergovernmental
SPUC
Interest
Total Revenue
EXPENDITURES:
Expenditures per List CIF
CR 18 Trail
CR 101 Trail Ext
12th Ave Trail
Trunk Sewer S of Valley View
Independence Dr
CR 83 pmt (2009 county project)
Concrete Alleys
Street Light Replacement
Overlay
Reclamation
Total Expenditures
OTHER FINANCING SOURCE (USE)
Transfers In
Sewer
Storm
Transfers Out
Total Other Financing Source (Use)
Excess (Deficiency)
Cash Balance January 1
Balance 12/31
Capital Improvement Fund
Projected Cash Levels
2011 -2015 Capital Improvement Program
City of Shakopee, Minnesota
2011 2012
$ - $ 100,000 $
12,000 12,000 12,000
527,000 690,000 690,000
119,560 105,330 86,520
658,560 907,330 938,520
35,000
1,060,000 1,610,000 290,000
570,000
1,095,000 1,660,000 1,060,000
(394,280)
(394,280)
(830,720)
5,044,000
$ 4,213,280 $
50,000
(752,670)
4,213,280
3,460,610
Interest is calculated @ 2.5% on the prior years ending fund balance
2013
150,000 $
200,000
(121,480)
3,460,610
$ 3,339,130
2014 2015
200,000 $ 250,000
12,000 12,000
33,000 33,000
10,000
23,000
690,000 690,000
83,480 91,190
1,018,480 1,109,190
300,000
310,000
300,000
420,000
150,000
300,000 1,790,000
910,000 2,660,000
200,000
210,000
200,000 210,000
308,480 (1,340,810)
3,339,130 3,647,610
$ 3,647,610 $ 2,306,800
REVENUES:
Tax Levy
Tax Levy - Bond
Special Assessments
Special Assessments Reclamation
Special Assessments Trunk Sewer
Special Assessments Independ Dr
Intergovernmental
SPUC
Interest
Total Revenue
EXPENDITURES:
Expenditures per List CIF
CR 18 Trail
CR 101 Trail Ext
12th Ave Trail
Trunk Sewer S of Valley View
Independence Dr
CR 83 pmt (2009 county project)
Concrete Alleys
Street Light Replacement
Overlay
Reclamation
Total Expenditures
OTHER FINANCING SOURCE (USE)
Transfers In
Sewer
Storm
Transfers Out
Total Other Financing Source (Use)
Excess (Deficiency)
Cash Balance January 1
Balance 12/31
Capital Improvement Fund
Projected Cash Levels
2011 -2015 Capital Improvement Program
City of Shakopee, Minnesota
2011 2012 2013 2 014 2015
100000 150000 200 250000
12,000 12,000 12,000 12,000 12,000
33,000 33,000
10,000
23,000
690000 690000 690000 690000
126,100 128,680 130,940 115,270 109,020
138,100 140,680 142,940 160,270 187,020
35,000
Interest is calculated @ 2.5% on the prior years ending fund balance
50,000
200,000
300,000
310,000
300,000
420,000
150,000
1060000 1610000 290000 300000 = 790000 +1000
570,000
35,000 50,000 770,000 610,000 870,000
200.000
210,000
- 200,000 210,000
103,100 90,680 (627,060) (249,730) (472,980)
5,044,000 5,147,100 5,237,780 4,610,720 4,360,990
$ 5,147,100 $ 5,237,780 $ 4,610,720 $ 4,360,990 $ 3,888,010