Thank you for the opportunity to expand on several points made in a recent Citizen article about debt, “Local public debts that you may not know you owe (The Citizen, January 30, 2013).
The article states that more than three-quarters of Peachtree City’s debt was authorized without taxpayer approval. That is correct. Taxpayer approval isn’t necessary, nor is it called for, for certain kinds of debt.
Municipalities utilize five kinds of debt: general obligation (G.O.) bonds, revenue bonds, lease purchase agreements (sometimes called “bricks and mortar” leases), public facilities authority bonds, and equipment leases.
Under Georgia law, voter approval is required for G.O. bonds but not for the other four types of debt. This is because incurring debt to fund items that are considered a necessity in order to keep up city infrastructure does not typically go to voters; it is part of a City Council’s responsibility.
A G.O. bond goes to a referendum to allow citizens to decide whether they want a new (optional) facility, or an expansion to an existing facility.
In 1993, PTC citizens voted “Yes” to a bond referendum to construct the Kedron Fieldhouse, Recreation Administration Building, and the baseball-soccer complex. In 2001 and 2003 PTC citizens voted “Yes” to bond referendums for the airport and for an expansion of our library, respectively.
Revenue bonds are used to fund improvements to municipal enterprises that generate revenue through user fees or other revenue streams, such as water and sewer systems and stormwater systems. The revenues of the enterprise are used to repay the revenue bonds. Typically, revenue bonds are longer term debt, 20-30 years, due to the long useful life of the assets being financed.
In 2007, we issued revenue bonds to fund the initial phase of improvements for the newly created stormwater utility.
Lease purchase agreements and public facilities authority bonds are authorized by Georgia statutes. The city is authorized by Article IX of the Georgia Constitution to contract with any public corporation or public authority for services or the use of facilities, and to pledge its full faith and credit and taxing power to secure those contracts.
To date, we have used these debt structures for non-routine upgrades and improvements to existing buildings and facilities (although these can also be used to acquire or construct buildings and facilities). Typically these instruments are issued for 10-20 years.
We recently used a facilities authority bond to fund replacement of the pool bubble at Kedron; re-seal the exterior of the library; and fund facilities improvements at Public Works, the amphitheater, and two of our fire stations. This was a 10-year issue at 2.095 percent.
Equipment leases are shorter term, usually five to seven years in duration. Council approves equipment leases for police vehicles, fire trucks, and public works trucks. An equipment lease of several years spreads the payments over the useful life of the assets; it also means it is paid over time by the citizens who “use” it (vs. creating an immediate cost burden on today’s taxpayers only).
In 2011, Peachtree City took advantage of low interest rates by refinancing the 2004 library bond for a savings over the life of the bond of over $72,000. We refinanced a 2007 bricks and mortar lease, and a 2006 equipment lease, for a savings of more than $163,000.
Interest rates had been 3.410 percent, 3.960 percent, and 4.029 percent, respectively. Now it is 2.19 percent (and we did not extend the life of the debt). We also used cash reserves to pay off the Tennis Center debt balance of $143,000 which had been financed at 5.93 percent. This pre-payment saved the city about $54,000.
As mentioned in the article, a 2002 Lease Purchase of land on the west side of town, financed at 6.120 percent, has pre-payment penalties so onerous the instrument cannot be paid off early. Consequently, taxpayers will continue to pay $87,000 per year on this debt until Fiscal Year 2017. None of the current council members was involved in that decision.
All of our current debts are scheduled to be paid off within 14 years, some of them much sooner. We have no 30-year bonds.
Having shorter term bonds means more of our annual budget is used to pay the debt, but that’s a good thing. It’s like having a 15-year mortgage instead of a 30-year mortgage: pay it off sooner and save on interest. In the world of municipal finance, this is considered a “rapid payoff.”
This fiscal year, our cash reserves stand at an incredibly high 39.23 percent of our budget. With this much cash in reserves, we now have the flexibility to consider paying off early one of our G.O. bonds and an equipment lease, in the coming year.
Overall, we have an appropriate mix of debt vs. pay-as-you-go. This helps our credit rating which is AAA (S&P) and Aa1 (Moody’s). We are one of only three cities in Georgia that have achieved this rating.
According to Moody’s 2011 U.S. Local Government Medians, the average “Direct net Debt as a percentage of Full Value” for Aaa-rated U.S. cities with a population less than 50,000 is 0.61 percent. Peachtree City’s is less than half that, at 0.30 percent.
Also according to Moody’s, the average “General Fund Balance as a Percentage of Revenues” is 33.99 percent. Ours is 39.23 percent.
In an evaluation dated 1/15/13, Moody’s listed Peachtree City’s “manageable debt burden” as one of our many strengths.
Financially speaking, Peachtree City is healthy and prosperous. Throughout the toughest possible economic times, we have planned for the worst and hoped for the best – and prevailed.
Budget debates and decisions, including those pertaining to debt, are made in the public forum, and the Peachtree City budget is posted on our city website. (The “Debt Service Detail” list is found on page 40/111.)
Our annual budget process begins anew in a couple of months; your City Council maintains, as always, an open, transparent budget process and I hope you will join us again this year.
Still “Passionate about Peachtree City,”
Kim Learnard
City Council Post 3
Peachtree City, Ga.
