Columbus city council is considering another round of street paving projects, following a 5-1 vote Tuesday night to further discuss the issue next month.
During the meeting, City Engineer Kevin Stafford presented a preliminary list of streets in “poor condition” and in need of paving. The estimated cost for repairing all the streets on his list would total $6.5 million, he said.
To cover the cost, the city would likely have to issue a multi-million-dollar bond, council members suggested, despite concerns about affordability.
“If we don’t like it, if the finances are not there, we can always kill the deal,” said Mayor Robert Smith.
But if the city were to use bond debt, the borrowed money would add to the city’s existing debt, which totals roughly $36.4 million, according to The Dispatch’s past reporting and analysis of city documents obtained through a public records request. The figure is more than four times the $8.2 million of debt the city owed in 2010.
More than $15 million of the remaining debt owed, which the city is scheduled to repay over the next 11 years, was borrowed for road paving over the past decade.
The mounting debt, as well as the drop in the city’s general fund balance in Fiscal Year 2017 and an operating deficit the next year, drove down the city’s credit rating in 2018. The rating helps inform bondholders of the risk level of the city’s payback ability.
The rating was downgraded from A1, the highest rating in the “upper-medium low risk” category, to A3 in November 2018 by Moody’s Investors Service, a company that evaluates and rates credit for municipalities nationwide.
The most recent rating remains the same, “notably lower” than the median values among all U.S. cities the company rates, according to a March 10 report from Moody’s.
Moody’s rates cities’ credit risk level on tiers Aaa, Aa A, Baa, Ba, B, Caa, Ca, and C. Each category has three levels.
“The median rating for a city in the United States is Aa3, which is three notches higher (than that for Columbus),” said Moody’s spokesperson David Jacobson.
The current rating could drop further, Jacobson said, which could affect the city’s borrowing capacity and interest rates for new debts.
Breaking down the debt
Among the city’s existing debt, $15.2 million are bonds issued for road paving in 2010, 2014 and 2016, city records show.
The bonds are all 15-year and 20-year bonds and are scheduled to be paid off between 2029 and 2031.
But the life of a street paving project tends to be shorter than the bonds, Ward 6 Councilman Bill Gavin said. In some cases, streets paved in the past 10 years using bond money are already deteriorating, while the city is still repaying the debt on them.
“Ten years is about it,” he said.
Potholes are showing on Leigh Drive, alongside Baptist Memorial Hospital-Golden Triangle, Gavin told The Dispatch. The road was among the paved streets in 2010 when the city issued a bond of $8.9 million. The city has $5.2 million of debt remaining from that bond and is expected to pay it off in 2030.
Aside from bonds for road paving, the city also carries $8.3 million in debt on renovation and redevelopment projects, city records show.
The oldest debt dates back to 2009, when the city borrowed $100,000 for a storage building for the fire department. The remaining debt from that purchase is $55,392, which is expected to be paid off by 2029.
The city also borrowed for other capital projects in recent years, including: $223,332 in 2012 for the Sim Scott Community Center renovation; $250,000 the same year for Townsend Park Community Center and Charles Brown Basketball Pavilion; $2.4 million in 2013 for the Trotter Convention Center renovation; $2.2 million in 2015 for the Moore’s Creek Crossing project; $650,000 in 2015 for the purchase of Gilmer Inn and Brumley’s Sporting Goods; $1.2 million in 2016 for the University Mall Redevelopment project; and $3.2 million in 2017 to prepare the properties in the Burns Bottom Redevelopment District for sale, in hopes of attracting new high-value development.
The Moore’s Creek and University Mall projects came through tax-increment financing, which is repaid from a portion of sales and property taxes generated by developments built at those sites.
Additionally, the city has $4.7 million of debt remaining from $7.4 million borrowed on lease/purchase agreements, mostly for things like police vehicles and large equipment used by various departments.
City records did not include the $5 million bond package the city issued last year for the recovery from the February tornado, 87.5 percent of which the federal and state emergency management agencies will reimburse once all recovery projects are completed. That would leave the city bearing up to $625,000 of the cost out-of-pocket.
The records, which reflect debt until the end of September 2019, also did not include a 15-year bond the city issued late last year for its $3.2 million project to replace more than 4,000 now city-owned street lights with energy-saving LED lights.
Smith told The Dispatch in March debt is common among municipal governments.
“When (municipalities) do projects, they do (general obligation) bonds,” Smith said. “Because most municipalities … don’t have the money to just go ahead and jump on it and pay for the projects.”
Impact by COVID-19
Adding to the city’s debt situation is a projected drop in sales tax revenue over the next few months due to the COVID-19 pandemic limiting, or even temporarily shuttering, many businesses.
“At the rate things are going,” Smith told councilmen Tuesday, “in the next month or so … we are going to see a reduction in sales tax.”
Smith called for council consideration to cut city expenses during the pandemic. That could include a hiring freeze, limiting purchases of “big-ticket items” such as trucks, limiting travel and overtime and cutting pay for the mayor and council members, Smith suggested Tuesday. Starkville has taken similar measures ahead of a its expected sales tax revenue drop.
Ward 2 Councilman Joseph Mickens, who was the lone dissenting vote on Tuesday, said at the meeting he would prefer to wait for a clearer picture of the pandemic’s economic impact.
“I’d like to hold on till we see how this is going to affect taxes and everything for the next two months,” he said.
But most council members think it is safe to go ahead and pursue the street paving projects, which they say are necessary.
The financial situation concerns him “quite a bit,” Gavin said, and the bond would not be easy to pay back. To pay for it, he said, cuts can be made.
“We can cut back on a lot of trips that we take to save some money,” he said. “Now, it’s not going to save enough money to make up $5 million, there’s just not enough to cut.”
As for the additional financial burden this would put on the city, he said the bond would only add to the debt “for a while” as the city pays other debts off.
The city’s internet sales tax revenue could help pay toward the debt, Ward 3 Councilman Charlie Box said.
The revenue, approved by the Legislature last year, will give municipalities funds to pay for road maintenance and infrastructure. The city will receive $250,000 from the collections this year, and the amount will double each year until it reaches an estimated $923,000 in 2023, The Dispatch reported.
“That’ll be money we will be able to use to pay the bond off,” Box said.
Gavin said the city needs to pave the streets regardless. The timing is appropriate, he said, because the interest rates are low.
“It’s a gamble,” he said. “We either do this now or wait for the interest to go up.”
Conflict disclosure: Managing Editor Zack Plair took part in editing this article. He is currently involved in legal proceedings with the city of Columbus.
Yue Stella Yu was previously a reporter for The Dispatch.
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