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Major City projects currently in the pipeline, and in some cases underway, might be halted, delayed or canceled altogether because of concerns about a growing mountain of debt facing the City.
In an effort to control growing debt and change the way projects are financed, City staff on Jan. 10 presented City Council with a report on projects scheduled to be completed using the issuance of general obligation bonds, or GO debt.
While the Council did not come to a decision, City Manager Wally Bobkiewicz left with instructions to trim even more from an already slashed list of projects.
In recent years, Evanston has been taking on about $10 million in debt per year to fund capital projects through the issuance of GO debt, said Assistant City Manager Marty Lyons. The resulting mountain of debt now stands at over $151 million, or about $2,000 for each Evanston resident. “Net per capita debt should remain under $900,” he said.
Mr. Bobkiewicz painted the problem in even starker terms, telling Council that the method it currently uses to fund many major projects may not be available in the future.
“In the future, the City might not be able to debt finance projects,” he said. “The bond market might say, ‘No thank you.’”
The list of capital projects presented to Council had already been trimmed to the bone. While not quite “zero-based budgeting,” staff was told to “assume you have no money” from GO debt and look at what is absolutely necessary.
Staff took the resulting list and created three categories: carryover projects, or those already begun or funded; priority I projects, or those either partially funded already or most immediately in need of completion for safety or other compelling reasons; and priority II projects, or projects greatly needed that do not fit into Priority I.
Priority I projects currently recommended for 2011 would require the issuance of about $6.2 million in additional GO debt, according to a memo provided by City staff to Council.
“I believe that number could be less,” said Mr. Bobkiewicz, adding that he would like to get the number closer to $5 million. Continuing to add to GO debt means the City has to pay more and more in debt service, he said.
Mr. Bobkiewicz highlighted a number of specific projects on the carryover and Priority I list for Council to consider. He suggested a long-range view in looking at a number of projects.
The fourth of four installments on the installation of the Accela software package, $245,000, made the Priority I list. Council has been asked to spend millions and millions on software over the years, he said. Whether software should be considered a “capital” project and paid for with GO debt was not addressed.
The City has made great progress in improving the Civic Center, he said, but could do with $2 million more in improvements.
Priority I projects for the Civic Center total $450,000 in 2011, including the replacement of the removed staircase, asbestos abatement, fire pump evaluation, directory signage, and code compliance renovations.
Noyes Cultural Arts Center renovations (two projects at $500,000), the Ecology Center greenhouse ($220,000), Animal Shelter renovations ($85,000) and the Lakefront Fog/Signal houses renovation (adjacent to the lighthouse, $590,000), all “beg the question of additional future uses,” said Mr. Bobkiewicz.
Council should feel “comfortable from a pragmatic standpoint” about these buildings and what the City will do with them before borrowing money to complete such projects, he said.
Council should ask what the future holds, what programming goes on now, and what could go on. “What is the future of the Noyes Cultural Arts Center?” he asked.
Similarly, the City’s service center made the Priority I list four times, for parking deck repairs ($50,000), BAS (HVAC control system) replacement ($100,000), make-up air unit ($85,000) and locker room renovations ($125,000).
Mr. Bobkiewicz suggested the Council enter into a “broad discussion about the service center and its uses.”
The Priority I list includes $1.47 million in street resurfacing in conjunction with the water main projects.
The City could spend three times as much as it does on street resurfacing, said Mr. Bobkiewicz. “Where does that fit in the overall scheme of capital projects?” he asked. Street resurfacing takes place every year, and does not, on its face, seem to qualify as a “capital project” eligible for GO debt, he said.
Mr. Bobkiewicz encouraged a bigger-picture policy discussion about funding projects and the use of GO debt.
“I wish we had the money to do all the things” the City needs to do, he said, “but the debt is so significant that we can’t.” The City needs to set priorities so the GO debt number can be as small as possible, he added.
Mr. Bobkiewicz said staff would return with a revised list, that would require a vote, for the Feb. 14 City Council meeting. Based upon Council’s questions, it will not be a happy Valentine’s Day for the Fog and Signal house renovations.
Alderman Melissa Wynne, 3rd Ward, put it most bluntly, asking how much it would cost to “mothball” those buildings.
Perhaps the suggested broader discussion as to which projects should actually qualify as “capital projects” eligible for GO debt will take place then as well.
Cityâ³ Debt PolicyIn September of last year, Assistant City Manager Martin Lyons and Director of Administrative Services Joellen Earl presented information about Evanston’s debt and recommended a debt policy.
According to their memo, Evanston’s total debt-to-EAV (equalized assessed valuation of property in the City) ratio is 9.47 percent. That is nearly twice the average of comparably-sized suburbs. The debt-to-EAV ratio of Arlington Heights (1.88 percent), Elgin (1.58 percent), Naperville (1.85 percent), and Skokie (1.47 percent) was less than 2 percent: Hoffman Estates, at 6.66 percent, Waukegan, at 5.81 percent, and Schaumburg, at 6.51 percent, were still significantly below Evanston.
Looking only at general obligation (GO) debt in relation to EAV, Evanston’s ratio looks better but remains high at 5.93 percent; only Schaumberg is higher with a 6.51 percent ratio. With a population of 77,000, Evanston has a per-capita GO debt of $2,241, or 6 percent of per capita income.
City staff recommended reducing the net debt per capita from the $2,241 level to $900 or less and to lower the GO-to-EAV ratio, now at 5.93 percent, to 3 percent.
To do that, the City will try to keep the average maturing of GO bonds to at or below 15 years. It will also try to tie the amortization period of debt for capital projects to the useful life of the project itself.