San Angelo Considers Going Into Debt to Fix Streets

City streets, a new police admin building, fire department, and multiple other currently unfunded capital improvement projects were discussed in a special evening City Council meeting Thursday, where the Council was presented with funding options and asked to define priorities.

The capital improvements plan for the next five years includes 74 projects that total approximately $311 million. Of those projects, 38 are presently funded through grants and other means; the remaining 38 are still open and a decision on funding options will be needed to in order to move forward. Those that are currently unfunded equate to a dollar amount of $111,287,214.

Morgan Chegwidden, Budget Manager for the City of San Angelo, introduced the funded and unfunded projects to Council, which was followed up by a presentation of four funding options given by City Finance Director Tina Bunnell.

Examples of Unfunded City of San Angelo Projects:

The first three options Bunnell presented involve the City issuing debt at varying intervals over different time spans, which will be paid using property tax within an 8-10 cent range. Eight cents of property tax has continually been used to pay for debt, Bunnell says, and the City’s objective in the proposals was to not put any extra burden on taxpayers. Additionally, staff considered a few main priorities when putting the proposals together, including streets and police and fire stations.

“In all of the proposals…we’ve included $5 million for a potential police station rehabilitation, $2.5 million for the fire station, and it will be between $1.4 and 2.2 million dollars for the fire training center…that will be funded by $200,000 a year in ambulance fees,” Bunnell began her presentation.

“One of the keys here is the uncertainty associated with the police department facility,” Chief Financial Officer Michael Dane added. “A few year back when we started this plan, we put $5 milllion in there. The $5 million was never intended to create a new facility, it was very much a number to put at a remodeling effort. We didn’t have enough information to have certain direction on that, but we didn’t want to ignore the project completely, so we left $5 million in there like the plan had originally.”

None of the proposals are designed to function exclusively with selected projects over others, however streets have been the number one complaint citywide, Dane said, and is a likely priority for Council when selecting projects to tackle in the coming months and years.

In proposing funding, Bunnell’s first option is to issue $40 million in debt at staggered intervals of 2 years, at $8 million per issue.

“The advantages of that is that it would stretch your payments and your money over time, and for a project like streets this might be a good option, because we can’t initiate and complete projects immediately,” she said. “It takes time to complete them anyway. This option could be paid for with existing capacity initially; in about 10 years or so, we would have to find a penny somewhere within the tax rate.”

Dane added that the City could grow into it and not need the penny, but that staff kept their assumptions conservative when drafting the proposals. 

Fleming was concerned that issuing so much debt might handicap the city when it comes to other upcoming projects, such as those pertaining to water.

“When rating agencies reviewed San Angelo in the past, one of the consistent comments was ‘relatively low debt loader,’” Dane said. “A couple of things have happened in the past few years. We issued $120 million worth of bonds for the Hickory project and the school district has issued some bonds for their capital plan. That has gotten the attention of the rating agencies and now they talk about—they don’t say we have a high debt load, but when we say in addition to that we’re working on a long-term water supply, we’re working on a streets strategy and we’ve got these smaller issues we’re working on, a fire station and we’ve got the possibility of a police station—they begin to say this debt load could become something that gets our attention.” It’s all about how much is too much and what the City’s commitment is to paying debts.

Dane said that getting the attention of rating agencies is not necessarily bad, but that as debt loads increase, they want to see that the City is more actively managing or responsive to negative economic conditions. “For example, a couple of meetings back, Tina did a presentation where she talked about the financial stress that she’s seeing in the water operating fund financials because we’re not selling as much water as we usually do. That’s good management. It’s good management that she and Ricky (Dickson) spotted it, they’re working on budget issues associated with it…the rating agencies want active management like that,” he said.

After Dane finished explaining the situation, Bunnell presented option two, which is essentially the same concept as the first, however increases the debt issue to $50 million at two-year intervals, with $10 million per issue. Again, Bunnell listed the advantage of stretching payments over time, however noted that it would require additional funds for payment. “We cannot do this within existing capacity,” she said. “It would require two cents to fund this one.”

In the past, 10 cents from the property taxes were allocated to debt payments, however a few years ago, two cents were moved into cash, pay-as-you-go-type capital, Dane explained. Those cents would need to come back within 3-4 years if the second option was chosen.

Charlotte Farmer was concerned about the necessity of future water purchases and how the debt issues might affect those needs. “If we had four $10 million issues out there, I would think that that would harm us whenever we made application—even to the state rainy day fund—to assist us with our water needs if we have this much debt outstanding out there,” she said. “I’m just throwing up caution.”

Dane said that to the effect the debt can affect the rating agencies’ opinion, it can affect the interest rate the City pays. He reiterated that the option was the same as the previous one, but it’s just pushing a bit harder to get something done for the streets.

“Show us something good on option three,” Mayor Dwain Morrison said.

“Ok,” Bunnell responded, then introduced option three as a lump sum issue of $30 million. “The good thing with that is that you get all the money up front. It would be good for…a big project like a complete new police station or something like that. The disadvantage to that is that we don’t have a plan in place for that, so we’d be paying interest on debt that we can’t really do anything with yet,” she said. “This could actually be paid for with existing capacity.”

The payback on the third option would take 27-28 years, Bunnell said. The last option was a pay-as-you-go option, in which debt service money would be put into a cash plan to be used on projects when funds are available. The advantage would be that there would be no debt issued, however in order to fund a project the City would have to wait for years for the funds to accrue—to save up—before they could start anything. Inflation may also mean that the value of the savings would decrease, forcing the City tp put asside greater and greater amounts, thus extending the period before the project could be started.

“That looks like $1.6 million initially, for about five or six years, gradually increase to about $1.9 million by the 15th year, after that, it’s about $3 million. So for the first few years you’re at less than $2 million a year in cash that you could use towards street projects, whatever project you want to use it for. You’re limited here.”

One of the main street projects is a reconstruction of Bell Street from the Concho River to Old Ballinger Highway. That project alone is priced at $8.4 million. In order to start the project, which has city staff and some council members say is a high priority, it would take five or six years of savings.

In total, street-related projects total $157 million, however high priority projects that need to be completed within the next five years fall at approximately $35 million. The remaining sum is for street issues proposed to be addressed beyond a five-year period.

Having given Council several options, Dane provided relief by saying that a decision was not needed immediately. The issue had been whether or not it was possible to rehabilitate a number of streets within a 7-10 year range, he said. “I think what you’re seeing here is that is possible. It becomes a question of ‘How do we do that?’ and obviously, it’s got to be a priority of Council to step into additional debt,” Dane said.