It is not exactly the high drama of the debt ceiling debate that took place in Congress this summer, but there is a debt question that is beginning to emerge at Lawrence City Hall.
Will the $18 million renovation of the Lawrence Public Library push the city out of compliance with its own debt policy?
“I think it is something we need to continue to monitor,” City Manager David Corliss said. “I don’t want us to go too far on debt, but I still think we have a lot of capital needs in the community.”
City leaders don’t yet have a definitive answer on whether the city will violate its debt policy when it begins issuing debt to refurbish the Lawrence Public Library. But the question came up last week as the city added $4.2 million worth of bonded debt to its books to pay primarily for a variety of previously approved street projects.
As part of that debt issuance, the city updated several sets of statistics related to its total debt. That included a calculation of how much general obligation debt the city has per capita. The city has adopted a policy that says the “amount of general obligation bonds outstanding per population will not exceed $1,100.” After the most recent debt issuance, that level has risen to $1,015.
Based on the city’s most recent population — as counted by the Census Bureau — the city could add only $7.5 million in new debt without exceeding the city guideline. The city is expected to add about $18 million in new debt for the library by the end of 2013. The city also has several large debt projects planned that are unrelated to the library. In 2012, the city is scheduled to issue an additional $9.6 million in general obligation bonds for projects including repaving of major streets, park repairs, and $4 million in infrastructure costs related to converting the Farmland Industries property into an industrial park.
The city would take on additional debt for non-library projects in 2013, but the city doesn’t have an estimate for that amount. Over the last three years, however, the city has averaged about $9 million worth of new general obligation debt per year. During that same time period, the city has been paying off about $10 million worth of debt per year, so the city’s total debt burden actually has been falling.
But that will change with the library project. Whether the change will create concern at City Hall, though, is an open question. City leaders note the debt policy is not a hard-and-fast debt ceiling, like Congress was dealing with this summer.
Instead, it is a city policy that can be set aside if city leaders so choose. The guideline also is just one of six measurements the city uses to monitor its debt. The city doesn’t appear to be on the verge of exceeding any of the other guidelines, although the policy is written in such a way that it calls for the city to meet all six of the measurements.
But the biggest point that City Hall leaders make about the issue is that the new debt is appropriate because city voters say it is. Voters approved at the ballot box the $18 million plan for the library, and the 1.5 mill property tax levy increase to pay for the new debt.
The issue of whether the new debt would put the city out of compliance with its own debt policy, however, was not raised during the campaign for the library.
The debt policy also does have practical implications. Ed Mullins, the city’s director of finance, said the guidelines are meant to help the city maintain a high credit rating, which in turn lowers the city’s borrowing costs.
“It helps us look at things in a way that Moody’s (the credit rating agency) is going to look at things,” Mullins said.
The guidelines have been successful on that front over the years. The city recently was reaffirmed as having an Aa1 credit rating, the second best rating that Moody’s offers on debt.
How much Moody’s pays attention to the per capita debt totals is hard to estimate.
The debt guideline issue may be one that comes up again at City Hall. The city is expected to have a debate at some point of whether to add new debt to build a West Lawrence Recreation Center, in addition to more debt for streets, the Farmland property, fire truck purchases and other projects.
Corliss said he may want to look at the debt policy and make sure it is updated for today’s environment — for example, he’s not sure when it was last adjusted for inflation. He said the city needs to be mindful of how much debt it issues, but he believes the city probably ought to be issuing slightly more debt than it has been. He said that’s because the city has a significant list of projects it needs to tackle in terms of maintenance and on the economic development front. He also said interest rates have put the cost of borrowing money at historic lows.
“There may be times when it is appropriate for a community to stretch itself a bit when it comes to capital improvements,” Corliss said. “I think we may be in one of those times.”