Learnard: PTC debt is prudent and low

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.

BobbyBiplane
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Ms.Learnard, you are clueless ...

The simple fact that other communities accept debt as acceptable or reasonable does not mean that this inappropriate. I ,for one,am tired of politicians thinking that public debt is either reasonable or appropriate.

I am opposed to cities, counties,or states (including school boards (of which I have been a member in other communities)) borrowing for either operating expenses or short term capital investment.

I have taught economics at the collegiate level and provided consulting services to businesses and municipalities. I remain commited to the concept of minimal public debt. As I spoke recently in a public forum, I owe NO ONE a single cent and I do not endorse government doing so either.

So, my questions for you are:

1. What investments are you supporting that require borrowing? Provide the ROI for this borrowing.
2. What evidence can you provide that proves that investment at the local level ( particularly at the very small city level) actually show a positive cash position for the community .
3. What evidence do you have that shows that any prior borrowing by PTC actuallly provided a reasonable ROI ( with factual data for once, please)?

All my best,
Bob

johenry
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Stop already!!

Why are we building the Taj Mahal senior palace out of the old recreation building? We already have multiple places to go.

Aren't we in a recession?

tortugaocho
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Yo, Kimmy, you cannot

Yo, Kimmy, you cannot possibly be an engineer. I agree with Johenry. We have an infrastructure nightmare and you are over building on "wants" when you should focus on absolute "needs". What will happen is things like the cart path will end up a shambles while you're tooting around with this nonsense.

BTW--- comparing PTC's bond rating as "good" compared to horrible markets like New York and California is simply unbelievable. With our demographics we should be at the top of the country. We aren't because of obvious sloppy fiscal mismanagement.

Larry.Sussberg
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Tortugaocho-Get Your Facts Straight

Peachtree City is triple A rated by S&P, that is top of the heap and ahead of NY and California.

If you want to engage, have your facts straight!
This council has been fixing the fiscal mis-management of past councils!

Guess, what? Ms Learnard is an engineer, smart,and a good council person who with the others on council saved PTC a lot of money by re-financing old bonds.

tortugaocho
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Yo Larry-- you are only guy I

Yo Larry-- you are only guy I know that thinks PTC finances are good. Wow. We are borrowing more and more money. We have a declining tax digest. We have increasing bills and infrastructure maintenance. Are you nuts or dating Kimmy ?

Larry.Sussberg
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Yo Turtle Dumb

It's easy when you blog under an alias! But you know crap on this subject.
Most of the financing done was re-financing. The amount is extremely low to compared to most cities and its 15 years not 30 yrs bonds saving even more money.

Meanwhile, try picking up your phone and call city hall or speak to a council member to educate yourself. Most on council will take the time to talk, same for city staff. Look at the city budgets for the past 5 years and future projections. Some on council actually have that data prepared by Paul our budget director.

The city's finances are moving in the right direction and will continue to do do with small/limited surpluses being reported starting in 2014. The tax increases along with the budget cuts over the past few years solved most of PTC's financial problems created by previous councils.

As you said to me once before, you are what's wrong with politics today....
Dumb and uninformed voters shooting off at the mouth!

Due your research other than what you read in The Citizen and this blog.

Last I heard "Yo" was on the streets of Jersey City about 20 years ago.
And no I'm not dating Kimmie, she has a family just like you...

fay79isus
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"Why aren't the people of PTC pissed off about this?"

I agree with Bobby BiPlane--- Ms. Learnard has no idea what she's doing nor does the rest of council.

A friend of mine outside Fayette County asked "Why aren't the people of PTC pissed off about this?" when he read about the 137% increase in stormwater taxes. I just don't know. Is it because they don't bother because no one listens? Is it because they're rich and don't care about $200 a year in stormwater taxes? Is it like former Mayor Lenox was fond of saying "It's only a small amount of money."

Part of it is people like Sussberg. They passionately defend Learnard and Fleisch and put so little time in to what they post (like Sussberg) that they can't even use proper spelling and grammar.

I think people like Sussberg and Lenox think that the national debt is no big deal, doesn't hurt anyone and we shouldn't worry about it now. They probably agree with the liberal editorial by Paul Krugman this week---"Don't worry about the debt now".

Larry.Sussberg
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Fay79isus

I have no problem with an alias blogger attacking what I write.
But do not put words in my mouth!

Meanwhile, tell us your fiscal plan for PTC? Where we were, how to get to where we are and how to address future financial issues facing the city.

You can find most info posted on PTC website.

fay79isus
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That's why I choose not to

That's why I choose not to live in PTC, Mr. Sussberg--- people like you. You people will typically say one of two things when someone criticizes the royalty at City Hall: (1) well what is your grand plan and (2) if you don't like it here move.

I know many people that love PTC and think that its a great place in spite of City Hall and Council and not because of it.

I own and operate a multimillion dollar business. I don't have any interest in running for office. That's what I pay County Commissioners to do--- make those decisions, do the planning and spend the money wisely.

My plan, Mr. Sussberg ? You can't afford me.

Larry.Sussberg
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Fay79isus

Oh please

You dragged me into your post by putting words in my mouth as you rhetorically ranted on about debt and Paul Krugman.
Now, when asked for facts and an alternative plan to substantiate your arguments, you again rant on but this time about your business prowess and again, attacking me but offering nothing.

Surely you can offer more than your last 2 posts? You weighed in on this topic and dragged me in. As a business owner, you are versed in accounting, planning and clear/professional/factual and proper communication.

fay79isus
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Here you go Sussberg

Here you go Sussberg:

1. Anyone employed by the City who shows up to work intoxicated or who repeatedly commits sexual harassment is fired. Define the behavior; try to treat but then move on. The City has numerous lawsuits by failing to follow this simple personnel policy which is standard in private business;
2. Any contract for privatization which fails to at least meet the existing standards of city services is terminated. It’s simple--- if you can’t do it as well as we can and we are not saving money, you’re gone;
3. Look at projects with significant expense by conducting thorough, technical analysis of what needs to be done, budget it and finance it when necessary. This more than doubling of the stormwater fees and not even close to completing the project is horrific mismanagement;
4. Council--- disagree with on another, make your point and move on. Be professional, focus on the issues and don’t stoop name calling. Systemic failures o all these points by council.
5. Tell each department head to cut ten percent minimum this coming budget cycle.
6. Outsource more professional contracts and take bids. The City does too many negotiated contracts and they're killing us.

Need I go ? And also, your nearly daily diatribes against Mayor Haddix are repitious and childish. Wait for the election campaign for who ever you want. In a year Haddix will be forgotten but it is childish the way you harp on these issues. This is how a corporate board handles a personality conflict.

Larry.Sussberg
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Fay79isus

It's probably time to end this discussion because you still have not offered an alternative fiscal plan.

I guess you are unaware and/or unable to read city's budgets over the past 4 years to see that due to falling revenues and rising costs the city was facing a "real" multi million dollar deficit in 2009+.
It's ok you have no knowledge or suggestions on how the city should have closed that gap, whether through tax increases and/or budget cuts that this council had to take to reset our finances. Real recommendations using the numbers.

It's also ok you have no knowledge on how previous councils allowed city properties and assets to deteriorate because they had cut the maintenance budgets in the past and there was a terrible need for capital improvements. Or whether leasing or purchasing vehicles is the best route.

But, feel free to stand on soapbox and preach about debt without fact or a historical perspective of the city's finances or even looking at a city budget or speaking with a council member and reviewing the budget.

Thank you and in the future, do not put words in my mouth as you did.

Mike King
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Thank You Ms Leonard

An informative and well thought out article of the city's finances that pretty much sums up that it's legal to add additional debt up to ten percent of the value of the city's assessed property. Granted, I wouldn't expect the debt level to climb that high ($181M give or take a million here and there), but it does give me pause to think that as a Council you would be well within your rights to do so, even without the consent of those you govern.

Currently, Peachtree City has accumulated around $17M in debt with less than $10M in ready cash reserves while annual revenues total around $28M. Add to this the annual debt service is approaching $3M, and one has to ask how long can we expect to continue living beyond our means. My bet is that your personal finances would show a different slant.

That Council has chosen to refinance at lower interest rates demonstrates sound judgement while exposing perhaps lapses in judgement by those who came before you(Wynnemeade). Further, millage rates have steadily risen for some time now and will likely continue because of much needed infrastructure repair. No one is denying that the issues facing us are anything but simple.

To rectify what needs to be done, one must understand how the city arrived in its current dilemma. Take for instance storm water: For each new residential development or new commercial development it was the developer who footed the bill for the drains, hook ups, etc and the cost was actually passed on to the individual homeowners or entrepreneurs with the understanding that the city was responsible for both the maintenance and upkeep of this infrastructure.

Now, if the city staff over the years has convinced successive Councils to simply ignore those infrastructure needs, let's at least admit the problem lest we allow it to be repeated in the future. Perhaps ignore is a bit harsh and the term 're-prioritize' should have been used, but my point is made.

I would offer you a solution for consideration: Establish a five year plan to complete these projects by raising the millage rate, using funds from the reserve, and making across the board cuts from the city staff each equally in order to bring the situation under control. It goes without saying that these funds are to be specifically earmarked toward infrastructure repair without exception. Certainly, you could make this drag on for more than five years, but my vote would be to get it done soonest.

There will surely be gnashing of teeth by those employed by the city, and one might hear the term 'uncaring' as it is addressed to you. It will certainly be a hard decision, but it is one that would be expected by someone professing to be a leader.

pumpkin
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And The Award Goes To ? Mike King ?

you cant seem em mike.