Local public debts that you may not know you owe

PTC incurs debt without voter approval

Once upon a time, when local governments wanted to borrow money to pay for a new building or buy a new fire truck, the elected officials had two ways to go: Ask the voters to approve a bond referendum or pay for it out of current tax revenue cash flow.

No more. Now, using a variety of legal alternative borrowing methods, the governing body can skip the voter approval process and borrow as much money as lenders will allow.

An examination by The Citizen shows that more than three-quarters of the short and long-term financing being paid by Peachtree City was authorized without the necessity of prior taxpayer approval.

Peachtree City taxpayers are on the hook for $17.87 million currently in city-incurred debt. More than 80 percent of the debt owed by Peachtree City currently is debt that never went before the voters for approval. Slightly under 20 percent of the city’s outstanding debt actually received direct voter approval through the bond referendum process.

For comparison, the city’s current annual budget is $33.7 million. The total amount of debt — in the unlikely event all debts suddenly came due — represents 53 percent of this year’s total budget amount. Those various debts are being repaid over an extended period.

However, the various financing arrangements affect the bottom line of the city’s budget, with $3.31 million in debt service payments this year, accounting for 9.8 percent of the city’s total budget for the year.

Figures provided by the city show $3.47 million in outstanding principal for general obligation (GO) bonds approved by voters, compared to $14.4 million for all other financing instruments which did not require voter approval.

That figure dwindles down over subsequent years as loans are paid off. The estimated figure for FY 2014 drops to $2.92 million, and to $2.58 million in FY 2015 and $2.24 million in FY 2016 before dropping to $1.6 million in FY 2017.

That assumes no more debt will be incurred.

Among the projects used for financing without voter approval is the 2002 purchase of a 5-acre tract of land off Ga. Highway 54 adjacent to the Wynnmeade subdivision, which gave the city $843,000 and is requiring annual debt service of $86,880 until it expires in FY 2017 with a final payment of $65,160.

At the other end of the non-voter approved category is the public facilities bond approved by council last year, which was lumped with refinancing of two other outstanding bond for a total loan amount of $5.4 million, with $3 million earmarked toward repairs and upgrades to existing city facilities.

That loan, which helped pay for the new bubble enclosure over the Kedron pools, will expire in FY 2022 and this year alone is requiring a $633,000 payment, nearly a fifth of the city’s financing payments for the current fiscal year.

The two bonds refinanced with the facilities bond included the remaining $1.88 million in principal from a bricks and mortar loan from 2007 and the remaining $746,000 in principal from an energy performance contract which resulted in energy-saving fixtures being installed in city buildings to save on utility costs.

City Finance Director Paul Salvatore noted that the majority of the debt that has been accrued without voter approval was for “essential infrastructure upgrades.”

“We have no choice to spend on stormwater improvements, and can’t allow other infrastructure to just deteriorate either, so voter approval is generally not sought for those type of expenses,” Salvatore said.

As for bond debt authorized by voters, the city has $3.47 million in outstanding principle remaining on three different bond issues: a 2002 issue for improvements to Falcon Field Airport, a 2003 refunding of a recreation bond and a 2011 refunding of the bond for library construction.

Of those issues, the 2002 Falcon Field bond expires with a final payment of $163,680 in FY 2015, taking it off the books completely. Of the other two bonds, the ‘03 recreation deal sees its final installment of $201,354 paid in FY 2018 while the ‘11 library refunding ends in FY 2019 with a final payment of $431,375.

The city has also used other debt instruments such as equipment lease-purchase deals to buy vehicles for the police and fire departments so they can be amortized over five or seven years. These short-term arrangements account for just $1.21 million of the city’s total outstanding principle of $16.8 million.

In 2008 the city council authorized using $1.1 million for the purchase of vehicles and a fire truck; and again in 2010 when $1.01 million was financed in a similar arrangement.

Last year the city used an equipment lease-purchase deal to the tune of $489,000 and two weeks ago a similar deal was entered to purchase equipment ranging from new computers to a new rescue truck for the fire department along with three new dump trucks and a police motorcycle for $1.01 million.

Most of the equipment lease-purchase deals are for short-term financing over five years although one was leveraged over seven years.

The biggest drag on the outstanding principal are the four brick and mortar long-term lease purchase deals entered in 1999, 2001, 2002 and 2009, none of which required voter approval. Those deals have an outstanding principal of $4.55 million, which dwarfs the outstanding principal from voter-approved general obligation bonds of $3.47 million.

The city has used brick and mortar loans for longer-term financing such as the 1999 police headquarters construction project. Of the city’s four such outstanding loans, three will be fully paid off by 2017. But a 2009 note for citywide improvements that called for $2.55 million won’t be fully paid off until FY 2024, taking annual payments of $230,000 from the city’s general fund.

The city’s other large outstanding debt instrument is the 2007 stormwater bond that gave the city $3.74 million in proceeds but will be fully paid off in 2027.

Of all the various financing projects, the 2002 purchase of the land off Ga. Highway 54 near Wynnmeade hasn’t come close to meeting its final use. Part of the reasoning for the purchase was to prevent a developer from building a proposed gas station, but the other reason was to have a place for a “gateway” cart path bridge to land on that side of the highway.

The path bridge has not yet been built and is not in the city’s near-term plans at this point.

The good news about the city’s use of debt the past few years has been the incredibly low interest rates the city has achieved, said city Finance Director Paul Salvatore. It also helps level out the annual cost of vehicle purchases, which can vary wildly from year to year depending on the city’s needs, he said.

“With interest rates as ridiculously low as they are right now, it makes sense to take advantage of this in order to smooth out annual budget costs and not use big chunks of fund balance each year,” Salvatore said.

There is also the principle of intergenerational equity, which means that with the cost spread out over the life of the loans taxpayers avoid the big hit of a fire truck purchase, for example, and if they move out the next year they won’t get the full benefit of what they helped pay for, Salvatore explained.

Some years back when the city paid cash for items, its money was in the bank getting decent interest rates, Salvatore said. But that changed when the economy took a turn for the worse and it made more sense to use the low interest rates for favorable financing, he added.

That purchase of the land off Hwy. 54 for the gateway cart path bridge was notable because former Mayor Bob Lenox criticized council and particularly then-Mayor Steve Brown for debating the matter behind closed doors instead of in public. State law allows governing bodies such as the city to meet in closed session for the acquisition of real estate, ostensibly to keep others from driving up the price for the parcel the city is considering.

Brown said the city would not be able to prevent the gas station rezoning, but Lenox noted that the city plan called for a zoning that would limit it to use as a bank or day care, while part of the parcel was planned for residential use.

“We needed somewhere to land a bridge, Bob,” Brown said at the time.

Now, some 11 years later, Peachtree City taxpayers have paid for a parcel to nowhere, as there are no plans anytime soon to build the coveted gateway bridge.

Husband and Fat...
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53%

If all debt is equal to 53% of this years budget than I think we have over extended ourselves. If you or I went to the bank and asked for a loan, with debt equaling this amount do you think that the banks would be eager to lend? Now, I understand PTC is not an individual borrower, and I don't understand govt borrowing, but this seems like a lot of money financed thru 2024. That's 11 more years to pay for 2009 city improvements.

Now I approve refinancing loans to take advantage of lower rates, but I think we need to rein in long term debt that is paying for improvements that will require more improvements by the time the loan is paid off.

My parents thought me, and I am teaching my children how to live within our means. For a city, this means smart growth with long term high tax potential, and filling up our empty office and industrial parks, which in turn will fuel housing and retail.

I chose to live in PTC because it is a safe, family oriented place to live. I also limit my personal long term debt to my mortgage. Any other debt is paid off in full each month, just like my parents and in-laws taught my wife and I. We have our emergency fund, monthly bills, rainy day fund for family vacations, retirement fund, and long term stock market investments. Why can't a small city such as PTC also live within our means without playing the shell game and exposing our kids to this ponzi method of paying it back.

Larry.Sussberg
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Peachtree City Bonds

The article is slighty confusing and its important to clarify between what is new debt from new bonds issued by this council (2008 and on) vs old debt from older bonds where the city staff took advantage of lower interest rates saving the city money by re-financing.

Not sure that re-financing requires a voter referendum and in actuality, taking advantage of lower interest and saving the taxpayers money is good business.

As for equipment leasing, is that subject to voter referendums? Not sure.

Finally, what is our total debt in comparison to other cities in GA and accross the US. I suspect relatively low earning us the high credit rating.

What I find disturbing is...we know that council does not respond to blogs, but our mayor does and here he is silent on this topic
.
Does Georgia Miltiary College offer classes in Muni Bonds 101?

ssidenative
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6 cents and a nickel...

My dad, who well remembered the market crash in 1929, also worked two jobs, when he could find them. He gave up an arm in WWII, yet could still outwork most able bodied men into his 50s.

Which has absolutely nothing to do with anything relating to PTC's debt. The debt is well within reason, based on city revenues. Will it all be paid off in the lifetimes of the current citizenry and council? Of course not, nor should it be.

Oh, and my Dad...the process of losing an arm was an eye-opener he said. He realized how fragile his life - and the lives of every single person on this planet - actually are. And while he never had much, he always vowed that if he wanted something, he'd find a way to get it - NOW. If it cost a 6 cents, and he had a nickel, he'd borrow a penny every time.

He never backed away from those words. We took trips as a family we likely couldn't 'afford' by Dave Ramsey standards, drove cars we couldn't 'afford,' and lived a good life, all financed by any institution willing to lend.

My dad made it to his early 60s, and as he lay in a hospital bed dying of a sudden stroke, the last thing on my mind was debt. What was on my mind was the joy we'd shared, the things we'd done together, the things we'd seen.

Whatever he had spent, every dime was worth it to have had things that enriched our lives.

So how does that relate to PTC? Mr. King, your constant negativity seems to indicate that you believe PTC city officials are out to undermine our city, subvert the will of the people, and in short order ruin this wonderful town.

I, on the other hand, and most responsible residents, realize that the process of governing is simply not a perfect exercise. Is Mayor Haddix two doughnuts short of a baker's dozen? Absolutely. But that's what elections are for...

In closing Mr. King, enjoy life for a day or two...go buy yourself a trip you can't afford, now, and take a fresh, cheerful look at the world we live in...might improve your disposition.

Mike King
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ssidenative

We're obviously proud of our fathers, we simply disagree regarding debt.

It relates to PTC when the amount of debt exceeds half of annual revenues and climbing, our quality of life here in PTC has peaked with a decline in sight, the population is aging, and city revenues also in decline. Whether anyone is out to undermine PTC is doubtful, but borrowing one's way to prosperity is not a choice I would make.

Please, I do enjoy myself and my retirement with golf four days weekly, trips to the gym every other day, beer with the guys a couple times here and there, vacations when we desire. The nicest part, however, is that I don't owe anyone a damn thing!

ssidenative
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Not all debt is evil

To Mr. King, and the author of this story who of course carries a strong anti-debt bias:

All debt is not evil. At current rates, it's a huge mistake NOT to utilize ultra low-cost debt to protect city services and service levels.

Sounds to me like Mr. Salvatore has a very logical, sound plan for utilizing these unique market conditions to the betterment of the city. Let's show praise for that, not cower under the unfounded fear of borrowed money.

With an operating budget of mearly $34 million, long term debt of $17 million or so is far from unreasonable. Nearly every major American corporation takes on debt, regardless of profitability. They use it to manage their business, and nearly all do so responsibly.

In PTC, high levels of service protect the property values that protect the city's revenue base. So, if money's cheap, use it to affordably meet city needs, keep the tax base strong, and in the end, help preserve the culture that makes PTC a special place to live.

Mr. King, over the years I've read many of your comments. I admire your dedication and perserverence. However...you seem incapable of looking at things in a positive way, EVER. I would hope that you would occasionally smile, laugh, relax, and enjoy the wonderful life afforded to us by living in PTC.

intheknow
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Ssidenative

Two great, intelligent posts, but I don’t think Mike King will get it, he knows more than any posters here, and all government in general is out to ruin our lives, the lives of our children and our children’s children – In our case (PTC) I’m not sure, but I’m guessing its maybe one of the Ladies on Council steering this evil government plot against it’s citizenry.

Mike King
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ssidenative

You are indeed correct in that all debt is not all evil, but when it becomes second nature for political leaders at all levels to finance projects so that the pain of making restitution is borne by others, to me is unacceptable. I would agree that a debt level for a city such as ours would be within reason if it does not exceed the amount of cash readily available as a reserve. To do otherwise, simply tosses the burden of repayment to others less responsible. In other words, our federal government has no problem placing my kids and grand kids into a debt they had no say in.

Now, if you are of a mind that your children are responsible for the debts you create we simply disagree. Further, if you believe it is the obligation of responsible individuals to repay the debts of those among us who live far beyond our means we again must disagree.

I am the way I am because I watched my Dad work two jobs to free himself and his family from debt and pass that mindset on to his five kids. Don't get me wrong, he incurred debts later as have I, but once one has tasted being free of debt he nor I have borrowed more than we could pay off the next day.

Illustrated another way, would be that you wouldn't purchase property valued at $100K for $300K, now would you? Your city did just that when they purchased the Wynnemeade property for a cart bridge that we're still paying for.

Mike King
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More Debt For Our Town

This process has an eerie resemblance to our federal government simply spending money and charging our kids and grand kids with the debt. It matters not that these elected fiscal midgets were elected on the premise that they would do what is best for their constituency, what matters to them is an ability to spin the truth in order to placate their egos.

Further, this Council like those before it refuse to stand any principled ground against the whims of department heads for fear of being labeled anti safety or whatever. Two examples come to mind:

First, our recently retired fire chief whose despicable conduct was common knowledge for quite some time within the fire department, but no one within the city government would make even a ripple of an effort to bring this to the attention of the public.

Second, in this age of economic strife can anyone justify the hiring of an assistant to our 'beleaguered' police chief? Let's face facts, if the man can not handle a department of seventy some officers and administrative types why did we hire the man in the first place?

Without question the land purchase by Steve Brown was ill conceived and wrong headed, but Mr Brown simply opened the floodgates for Councils to follow. I do hope the personal finances of those we elect reflect a somewhat different perspective.

GeorgeDienhart
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Mike-

Would like to talk. I ca be reached at dienhartforptc@gmail.com

pumpkin
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Respectfully sir, Mike King is out of control

i pray you do speak with him.

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