111406 DEBTDebt
November 14, 2006
Today’s Agenda
Debt as a Budget Driver
Core Strategy: Act as Stewards of Public
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Resources
Long-Term Debt Report
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Credit Rating Discussion
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Relationship of Debt to CIP and Operating
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Budget
Future Debt Impacts
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Long-Term Debt Report
Summary of Outstanding Debt
at June 30, 2006
(in millions)
AmountSource
General Obligation Bonds
a. Schools $ 271Full Faith & Credit
b. General Government 274Full Faith & Credit
Public Facility Revenue Bonds 279 Annual Appropriation
(via VBDA)
Leases and Other Debt 15Annual Appropriation
Agricultural Reserve Program 23Full Faith & Credit/Strips
Revenue Bonds
a. Water & Sewer 137Revenues of Enterprise Fund
b. Stormwater 12Revenues of Enterprise Fund
Total Debt $ 1,012
Less: Revenue/Supported $ 172
Net Tax Supported Debt $ 840
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Note: Authorized and Unissued = $343 million
Summary of Current Debt
Affordability Indicators
Ratio Established Highest
Amount and
DescriptionGuidelinesFY 06
Year of CIP
Annual Debt Service to General No greater than 10.0%8.0%FY 06
Government Expenditures
8.0%
Overall Net Debt to EstimatedNo greater than 3.5%2.2%FY 07
2.29%
Full Value
Overall Net Debt Per CapitaNo greater than $2,400$1,921FY 08
$2,278
Overall Net Debt Per Capita to Per No greater than 6.5%5.1%FY 09
Capita Personal Income5.64%
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Total Debt Retirement at June 30, 2006
(If No Additional Debt Issued)
140M
120M
100M
80M
60M
40M
20M
0M
200720082009201320152016201720182019202320252026202720282029
2010201220142020202220242030
201120212031
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History of City Debt
Phase I
City Charter Limitation in 1963
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Phase II
Series of Referenda in 1980’s
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Roads
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Schools
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Recreation Centers
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Phase III
Enterprise Debt
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Water & Sewer (1992)
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Storm Water (2000)
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ARP (1996-97)
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Phase IV
Use of Annual Appropriation Debt
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Judicial Center
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Social Services Building
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Major Projects-Convention Center, etc.
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TIFs
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Phase V
Public / Private Partnerships
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Transportation
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Direct or Overlapping Debt
Proposed CDA’s: TIFS and
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Growth of Debt Program
Millions
1,200
$1,012
$963
$935
1,000
$762
$711
$689
800
$652
600
400
200
0
2000200120022003200420052006
Net DebtEnterprise DebtARP
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Debt Per Capita
Original guideline of $1,300 Per Capita approved in 1992
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Revised in 1998 to $1,500 Per Capita
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Revised in 2005 to $2,400 Per Capita
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$2,500
$2,278
$1,921
$ Per Capita
$1,885
$2,000
$1,500
$1,312
$1,222
$859
$1,000
$624
$500
$0
1985199019952000200520062008
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(est.)
Benchmarks
Hampton Roads Comparison
Net Debt/
S & P Credit Assessed Assessed
Rating Value Value/Pop
Debt/Pop
Chesapeake
AA 3.0%$68,510$2,078
Hampton
AA 3.656,3772,026
Newport News
AA 4.756,5962,660
Norfolk
AA 2.953,8941,572
Portsmouth
AA- 6.148,5742,963
Suffolk
AA- 2.875,4602,147
Virginia Beach AA+2.288,3041,921
Credit Reports from S&P with adjustments from respective City staffs.
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Benchmarks (cont’d)
Recent Key Affordability Ratios:
Triple-A Cities With Populations Between
250,000 and 1,000,000*
Unrestricted Overall debt
EBI** Fund Balance % of Overall debt
City % US % Expenditures Assessed Value per capita
Charlotte, NC 110 18 2.9 2,928
Columbus, OH 91 16 4.1 2,653
Indianapolis, IN 97 27 7.1 3,561
Minneapolis, MN 90 18 3.6 3,825
Omaha, NE 95 12 4.7 2,358
Raleigh, NC 120 31 3.4 3,369
Seattle, WA 108 14 4.5 6,940
St. Paul, MN 90 14 2.7 2,342
111 13 2.2 1,921
Virginia Beach, VA
* Based on data contained in a special report released 10/09/06, Standard & Poors.
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** Median household Effective Buying Income (EBI)
Benchmarks (cont’d)
Moody’s Medians
Per Median
Unreserved Capita Family
Undesignated Debt Burden Income as Income as
General (Overall net % of % of
Fund Debt as % Assessed State State
Balance as % Assessed Payout over Value Per (2000 (2000
of Revenue Value )10 years %Capita($)Census)Census)
Virginia Cities (Aaa)13.1%1.6%67.6%$136,597113.9%103.5%
US City (Aaa)12.92.072.3188,506176.5170.7
Virginia Beach, VA (Aa1)12.92.27488,30493.398.3
Aaa Cities Include:
Alexandria, Charlottesville
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Top 10 Management Characteristics of
Highly Rated Credits-S&P
Establish a rainy day fund
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Regular economic and revenue reviews
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Prioritize spending plans and establish contingency plans for operating
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budgets
Formalize a capital improvement program
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Long-term planning for all liabilities, including pension obligations
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and post employment benefits
A debt affordability model to evaluate future debt profile
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A pay-as-you-go financing strategy for operating and capital budget
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A multiyear financial plan beyond the annual budget
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Effective management and information systems
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A well-defined economic development strategy
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Some Policy Issues
Recommend no changes in Debt Policy at this time
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Continue to seek new revenue where possible
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Use of Pay-As-You-Go funding –Operating Budget
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Public Facility Revenue Bond with a Revenue Source
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Continue strong control of expenditures
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Maintain effective communications with rating agencies
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Financial Performance
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Debt
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Management
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Economic Factors
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Can handle moderate amount of additional debt not already planned
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Many influences that affect affordability
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Growth in income, population, etc
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New revenues
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Regional economy
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If less cash available, more selective –focus on community priorities
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Funding Relationship between
Operating Budget and CIP
The Capital Improvement Program is supported by debt and cash
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45% of CIP is supported by various types of debt
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55% of CIP is from various cash sources –Fund Balances, Operating
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Budget and/or State & Federal Sources
The Annual Operating Budget supports the CIP through significantcash
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funding over $60 million and debt service
Capital Budget
Total Operating Budget
FY07-$214,569,984
FY07 $1,639,515,908
State
Contribution
Fund
15%
Balances
12%
Cash
Debt
28%
7.6%
45%
3.7%
Debt Service
Cash
Capital Project Cash $60,458,227
Debt Service $124,202,936
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Debt Service as a Budget Driver
Debt service is 7.6% of total Operating Budget
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Debt Service has increased by 33% over the last 10 years
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Debt Service is projected to increase by 10% next year and
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28% over the six years of the CIP
Projected Debt Service
FY 07 –FY 12
Millions
140
120
100
80
60
40
20
0
15
070809101112
Actual
Debt Service becomes a more
significant budget driver if:
Less Cash Funding
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Interest rates go up
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Timing of issuances
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New projects in CIP
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Debt Service as a Budget Driver
Bonded Debt today is a lesser percentage of the
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Capital Budget than 20 years ago
Debt Service to General Gov’t Expenditures
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has decreased over the last 10 years from
10.1% to 8.0%
Take advantage of refunding opportunities
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when possible
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Debt Repayment Sources
General Fund $ 77.2 million
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School’s portion is $40.3 million
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Water & Sewer Fund $ 13.2 million
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Storm Water Fund $ 1.6 million
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Dedicated Sources $ 32.2 million
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Dedicated Sources Includes ARP, Town Center TIF, Major
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Projects Fund, TGIF, & Open Space
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Decision to Use Debt
Review of Capital Improvement Program
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Needs
Review of Non-Debt Funding Options
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Expected Life of the Capital Project
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Debt is Appropriated as Last Choice
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Major Types of Debt Available
General Obligation Bonds
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Charter Bonds
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Referendum Bonds
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Utility (Revenue) Bonds
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Appropriation Backed Debt –Requires
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City Council’s Dedication of Revenue
Public Facility Revenue Bonds
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Lease/Purchase of Equipment
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Debt Capacity
In Addition to Current 6-year CIP
$63 million before exceeding Charter Bond
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Capacity
$122 million before exceeding the $2,400 debt
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per capita figure
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The Long View
Future Debt Requirements –Council Priorities
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Major Transportation Projects
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Southeastern Parkway
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Completion of Partially Funded Roadways
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Waste Management
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Fire Stations
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Difficult to add many new projects
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Reduction in Real Estate Tax Rate, over time, could reduce
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cash to support CIP, and will put pressure on more debt
Issuance of new debt will need a dedicated revenue source
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Debt is a serious consideration for all levels of government in
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America
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