PTC incurs debt without voter approval
Once upon a time, when local governments wanted to borrow money to pay for a new building or buy a new fire truck, the elected officials had two ways to go: Ask the voters to approve a bond referendum or pay for it out of current tax revenue cash flow.
No more. Now, using a variety of legal alternative borrowing methods, the governing body can skip the voter approval process and borrow as much money as lenders will allow.
An examination by The Citizen shows that more than three-quarters of the short and long-term financing being paid by Peachtree City was authorized without the necessity of prior taxpayer approval.
Peachtree City taxpayers are on the hook for $17.87 million currently in city-incurred debt. More than 80 percent of the debt owed by Peachtree City currently is debt that never went before the voters for approval. Slightly under 20 percent of the city’s outstanding debt actually received direct voter approval through the bond referendum process.
For comparison, the city’s current annual budget is $33.7 million. The total amount of debt — in the unlikely event all debts suddenly came due — represents 53 percent of this year’s total budget amount. Those various debts are being repaid over an extended period.
However, the various financing arrangements affect the bottom line of the city’s budget, with $3.31 million in debt service payments this year, accounting for 9.8 percent of the city’s total budget for the year.
Figures provided by the city show $3.47 million in outstanding principal for general obligation (GO) bonds approved by voters, compared to $14.4 million for all other financing instruments which did not require voter approval.
That figure dwindles down over subsequent years as loans are paid off. The estimated figure for FY 2014 drops to $2.92 million, and to $2.58 million in FY 2015 and $2.24 million in FY 2016 before dropping to $1.6 million in FY 2017.
That assumes no more debt will be incurred.
Among the projects used for financing without voter approval is the 2002 purchase of a 5-acre tract of land off Ga. Highway 54 adjacent to the Wynnmeade subdivision, which gave the city $843,000 and is requiring annual debt service of $86,880 until it expires in FY 2017 with a final payment of $65,160.
At the other end of the non-voter approved category is the public facilities bond approved by council last year, which was lumped with refinancing of two other outstanding bond for a total loan amount of $5.4 million, with $3 million earmarked toward repairs and upgrades to existing city facilities.
That loan, which helped pay for the new bubble enclosure over the Kedron pools, will expire in FY 2022 and this year alone is requiring a $633,000 payment, nearly a fifth of the city’s financing payments for the current fiscal year.
The two bonds refinanced with the facilities bond included the remaining $1.88 million in principal from a bricks and mortar loan from 2007 and the remaining $746,000 in principal from an energy performance contract which resulted in energy-saving fixtures being installed in city buildings to save on utility costs.
City Finance Director Paul Salvatore noted that the majority of the debt that has been accrued without voter approval was for “essential infrastructure upgrades.”
“We have no choice to spend on stormwater improvements, and can’t allow other infrastructure to just deteriorate either, so voter approval is generally not sought for those type of expenses,” Salvatore said.
As for bond debt authorized by voters, the city has $3.47 million in outstanding principle remaining on three different bond issues: a 2002 issue for improvements to Falcon Field Airport, a 2003 refunding of a recreation bond and a 2011 refunding of the bond for library construction.
Of those issues, the 2002 Falcon Field bond expires with a final payment of $163,680 in FY 2015, taking it off the books completely. Of the other two bonds, the ‘03 recreation deal sees its final installment of $201,354 paid in FY 2018 while the ‘11 library refunding ends in FY 2019 with a final payment of $431,375.
The city has also used other debt instruments such as equipment lease-purchase deals to buy vehicles for the police and fire departments so they can be amortized over five or seven years. These short-term arrangements account for just $1.21 million of the city’s total outstanding principle of $16.8 million.
In 2008 the city council authorized using $1.1 million for the purchase of vehicles and a fire truck; and again in 2010 when $1.01 million was financed in a similar arrangement.
Last year the city used an equipment lease-purchase deal to the tune of $489,000 and two weeks ago a similar deal was entered to purchase equipment ranging from new computers to a new rescue truck for the fire department along with three new dump trucks and a police motorcycle for $1.01 million.
Most of the equipment lease-purchase deals are for short-term financing over five years although one was leveraged over seven years.
The biggest drag on the outstanding principal are the four brick and mortar long-term lease purchase deals entered in 1999, 2001, 2002 and 2009, none of which required voter approval. Those deals have an outstanding principal of $4.55 million, which dwarfs the outstanding principal from voter-approved general obligation bonds of $3.47 million.
The city has used brick and mortar loans for longer-term financing such as the 1999 police headquarters construction project. Of the city’s four such outstanding loans, three will be fully paid off by 2017. But a 2009 note for citywide improvements that called for $2.55 million won’t be fully paid off until FY 2024, taking annual payments of $230,000 from the city’s general fund.
The city’s other large outstanding debt instrument is the 2007 stormwater bond that gave the city $3.74 million in proceeds but will be fully paid off in 2027.
Of all the various financing projects, the 2002 purchase of the land off Ga. Highway 54 near Wynnmeade hasn’t come close to meeting its final use. Part of the reasoning for the purchase was to prevent a developer from building a proposed gas station, but the other reason was to have a place for a “gateway” cart path bridge to land on that side of the highway.
The path bridge has not yet been built and is not in the city’s near-term plans at this point.
The good news about the city’s use of debt the past few years has been the incredibly low interest rates the city has achieved, said city Finance Director Paul Salvatore. It also helps level out the annual cost of vehicle purchases, which can vary wildly from year to year depending on the city’s needs, he said.
“With interest rates as ridiculously low as they are right now, it makes sense to take advantage of this in order to smooth out annual budget costs and not use big chunks of fund balance each year,” Salvatore said.
There is also the principle of intergenerational equity, which means that with the cost spread out over the life of the loans taxpayers avoid the big hit of a fire truck purchase, for example, and if they move out the next year they won’t get the full benefit of what they helped pay for, Salvatore explained.
Some years back when the city paid cash for items, its money was in the bank getting decent interest rates, Salvatore said. But that changed when the economy took a turn for the worse and it made more sense to use the low interest rates for favorable financing, he added.
That purchase of the land off Hwy. 54 for the gateway cart path bridge was notable because former Mayor Bob Lenox criticized council and particularly then-Mayor Steve Brown for debating the matter behind closed doors instead of in public. State law allows governing bodies such as the city to meet in closed session for the acquisition of real estate, ostensibly to keep others from driving up the price for the parcel the city is considering.
Brown said the city would not be able to prevent the gas station rezoning, but Lenox noted that the city plan called for a zoning that would limit it to use as a bank or day care, while part of the parcel was planned for residential use.
“We needed somewhere to land a bridge, Bob,” Brown said at the time.
Now, some 11 years later, Peachtree City taxpayers have paid for a parcel to nowhere, as there are no plans anytime soon to build the coveted gateway bridge.