DGreport.com

So far there’s been an ongoing discussion of pensions, which unfortunately only the state can address; we’ve posted on payroll escalations in the upcoming year, cost per resident comparisons, payroll and staff comparisons, expense cuts and potential revenue generators.  Look in “budget” under category in the side bar search and you’ll get a good jumping in point.  DGreport commenters have added a lot of information along the way. Hat tip to all.

One thing contributing to the budget squeeze is something government taxing bodies do that we all do: borrow money.  They do it via bonds, which are debt securities with longer than 10 year maturities.The basic idea behind municipal borrowing is to spread the cost of a project time-wise to capture a larger percentage of resident users who benefit from the product of the borrowing.  By borrowing money for a fire station, that 20 year debt is repaid by a wider range of taxpayers than if it was paid for cash on the barrel head by who live here right now.  At least, that’s how it’s been explained to me by various village managers over the years (note: current VM Fieldman was not one of them).

You can click on any graph for larger images. The first graph on the right shows deficit borrowing since 1998.  With the exceptions of two years, DG has borrowed money each year to do something right away, and planned to pay it back over time.  At the front end most of this was TIF borrowing to buy and assemble properties for the Acadia on the Green development and the Parking Garage.  1998 represents $3 million borrowed for Fairview Avenue reconstruction, and a dedicated 1.5 cent/gallon gasoline tax was enacted to pay for the bond.  There was also a 2001 $4 million bond issue to install automated water meter readers throughout the village, and water fund revenues were dedicated to pay for it.  Both of these bonds have dedicated single sources to pay for them, so in some ways can be considered Revenue Bonds, but they both have a backstop of the taxpayer should anything go awry, so they are counted by the village as general obligation bonds.

The rest of the bonds issued before 2007 are for the Central Business District Tax Increment Finance District- The CBD TIF that we’ve reported on in the past.  While there are specific TIF Bonds, here in DG our TIF bands are still general obligation bonds.  When the village started issuing them, there was no Tax Increment to pay for them.  All the way up through today, DG still relies on general fund tax receipts and parking fund money transfers to make TIF bond payments, although it has been said those general funds have been repaid out of the TIF fund and accounts are now in balance.

The neon blue represents bond re-fundings.  These are typically done to take advantage of lower interest rates, lower the Total Interest Costs (TIC) of the borrowing.  Usually, as is the case here, the cost of issuing the bonds are more than made up for by the interest savings.  This does not reduce the outstanding principle, it replaces it.  In the case of the almost $10 million borrowed in 2005, it replaced the remaining balance of $12.7 million in 1999 and 200 borrowings.  On the down side, like when you refinance a home, the time span extends back out again, so the village, although paying less, is paying longer.

Some refi bonds. like the 2008A bond issue that refunds 1999, 2000, and 2003 bonds, have odd payment schedules.  This looks almost like a balloon payment loan, with the last two payments being whoppers.  Look for those to be dinked around with before the balloon pops in 2020.

The Series 2009 bonds refunded $12 million in bond debt from 2003.  After paying about $1.125 million a year for the first 6 years, the payments dropped to around $1.04 million a year.  Over the next ten years that saves the village over $600,000 in interest costs-just like you refinance a home when it makes sense.  Anyone who bought a house in the 12% mortgage early ’80’s is probably a refi expert.

There are basically three types of debt in the village: TIF debt, stormwater debt, and other debt like Fairview and the AMR’s).  The graph at right shows the total debt payments for all three types of debt has sort of piled up on us.  Keep in mind the TIF increment is supposed to pay for the TIF debt, but that’s money that may not be available to spend elsewhere for things like streets and infrastructure repairs.  TIF revenues have limited uses, and generally have to be used within the TIF district itself.  Although Village Hall and the Police Station are within the CBD TIF, no TIF generated funds can be spent on public facilities.  Blame that on past abuse where cities and villages used the TIF for new Taj Mahal Civic Centers.  Can’t be done anymore.

If you think $8 million a year for the next three years for debt payments is steep, it is.  At least $2.5 million of that is pure interest payments.  Coulda woulda shoulda ten years ago set $2 million a year aside for stormwater projects?  Would have saved us almost $16 million in interest payments over the next 30 years.  All we need is a time machine to go back and we’re all set.   In 2013 the village is scheduled to at least consider another round of stormwater financing, and right now a stormwater utility is far away.

As it is, the last two years of CBD TIF analysis shows that this district won’t come close to paying off the $45.2 million it still owes before the TIF expires in 2021.  In this case the annual payments ramp up every year from a bit under $3 million a year to just over $5 million a year.  It appears this was a clear skies and sunny days repayment schedule.  That may change if it stays dark clouds and rainy days.  Another refi.  This is the blue component of the total payment chart above.

An artifact of the recession is that consumers have reduced revolving (credit card) and installment debt, and increased their rate of saving.  the net result is the average citizen is paying less in interest costs.  Interest doesn’t buy you anything.  Even on your home loan interest costs you only recover a percentage of the interest costs as a tax deduction.

The same is true of muni loans.  Over the next 30 years the village is scheduled to pay $102,044,433 on $71,235,000 of bond debt.  Do the math.  That averages  $1 million a year just for interest.  Doesn’t buy us anything, just pays for the money we already spent.

Ogden Avenues TIF district offers a different model, and in a time when the ground rules for doing things have changed, may offer a guide towards some future spending.  In the case of Ogden avenue, money is saved up first, then spent.  The sidewalks going in along Ogden?  The sewer work being done?  No interest costs.  Zip nada.  Instead of every $1 spent needing $1.40 in repayment, and .40 of non productive expense, it all goes to goods and services, dollar for dollar.

We even have a sorta/kind example of it.  Back in the 80’s the village purchased the homes immediately south of old Fire Station #2.  By buying them when we had the cash, it cut the land acquisition costs by a couple hundred thousand dollars.  By saving, we wouldn’t make much in interest payments right now (check CD rates), but we would avoid further borrowing down the road.

It’s not something that can be done right at the moment, but if-when the economy picks back up, and when the village trims expenses back to the bone, and when there are surpluses, perhaps the idea of saving for future projects will have some attraction.

The current Debt Service Summary from the 2010 budget is here.