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Home My WebLink About111406 DEBTDebt November 14, 2006 Today’s Agenda Debt as a Budget Driver Core Strategy: Act as Stewards of Public ? Resources Long-Term Debt Report ? Credit Rating Discussion ? Relationship of Debt to CIP and Operating ? Budget Future Debt Impacts ? 2 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 3 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% 4 Total Debt Retirement at June 30, 2006 (If No Additional Debt Issued) 140M 120M 100M 80M 60M 40M 20M 0M 200720082009201320152016201720182019202320252026202720282029 2010201220142020202220242030 201120212031 5 History of City Debt Phase I City Charter Limitation in 1963 ? Phase II Series of Referenda in 1980’s ? Roads ? Schools ? Recreation Centers ? Phase III Enterprise Debt ? Water & Sewer (1992) ? Storm Water (2000) ? ARP (1996-97) ? Phase IV Use of Annual Appropriation Debt ? Judicial Center ? Social Services Building ? Major Projects-Convention Center, etc. ? TIFs ? Phase V Public / Private Partnerships ? Transportation ? 6 Direct or Overlapping Debt Proposed CDA’s: TIFS and ? 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 7 Debt Per Capita Original guideline of $1,300 Per Capita approved in 1992 ? Revised in 1998 to $1,500 Per Capita ? Revised in 2005 to $2,400 Per Capita ? $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 8 (est.) Benchmarks Hampton Roads Comparison Net Debt/ S & P Credit Assessed Assessed Rating Value Value/Pop Debt/Pop Chesapeake AA 3.0%$68,510$2,078 Hampton AA 3.656,3772,026 Newport News AA 4.756,5962,660 Norfolk AA 2.953,8941,572 Portsmouth AA- 6.148,5742,963 Suffolk AA- 2.875,4602,147 Virginia Beach AA+2.288,3041,921 Credit Reports from S&P with adjustments from respective City staffs. 9 Benchmarks (cont’d) Recent Key Affordability Ratios: Triple-A Cities With Populations Between 250,000 and 1,000,000* Unrestricted Overall debt EBI** Fund Balance % of Overall debt City % US % Expenditures Assessed Value per capita Charlotte, NC 110 18 2.9 2,928 Columbus, OH 91 16 4.1 2,653 Indianapolis, IN 97 27 7.1 3,561 Minneapolis, MN 90 18 3.6 3,825 Omaha, NE 95 12 4.7 2,358 Raleigh, NC 120 31 3.4 3,369 Seattle, WA 108 14 4.5 6,940 St. Paul, MN 90 14 2.7 2,342 111 13 2.2 1,921 Virginia Beach, VA * Based on data contained in a special report released 10/09/06, Standard & Poors. 10 ** Median household Effective Buying Income (EBI) Benchmarks (cont’d) Moody’s Medians Per Median Unreserved Capita Family Undesignated Debt Burden Income as Income as General (Overall net % of % of Fund Debt as % Assessed State State Balance as % Assessed Payout over Value Per (2000 (2000 of Revenue Value )10 years %Capita($)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 11 Top 10 Management Characteristics of Highly Rated Credits-S&P Establish a rainy day fund ? Regular economic and revenue reviews ? Prioritize spending plans and establish contingency plans for operating ? budgets Formalize a capital improvement program ? Long-term planning for all liabilities, including pension obligations ? and post employment benefits A debt affordability model to evaluate future debt profile ? A pay-as-you-go financing strategy for operating and capital budget ? A multiyear financial plan beyond the annual budget ? Effective management and information systems ? A well-defined economic development strategy ? 12 Some Policy Issues Recommend no changes in Debt Policy at this time ? Continue to seek new revenue where possible ? Use of Pay-As-You-Go funding –Operating Budget ? Public Facility Revenue Bond with a Revenue Source ? Continue strong control of expenditures ? Maintain effective communications with rating agencies ? Financial Performance ? Debt ? Management ? Economic Factors ? Can handle moderate amount of additional debt not already planned ? Many influences that affect affordability ? Growth in income, population, etc ? New revenues ? Regional economy ? If less cash available, more selective –focus on community priorities ? 13 Funding Relationship between Operating Budget and CIP The Capital Improvement Program is supported by debt and cash ? 45% of CIP is supported by various types of debt ? 55% of CIP is from various cash sources –Fund Balances, Operating ? Budget and/or State & Federal Sources The Annual Operating Budget supports the CIP through significantcash ? 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 14 Debt Service as a Budget Driver Debt service is 7.6% of total Operating Budget ? Debt Service has increased by 33% over the last 10 years ? Debt Service is projected to increase by 10% next year and ? 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 ? Interest rates go up ? Timing of issuances ? New projects in CIP ? 16 Debt Service as a Budget Driver Bonded Debt today is a lesser percentage of the ? Capital Budget than 20 years ago Debt Service to General Gov’t Expenditures ? has decreased over the last 10 years from 10.1% to 8.0% Take advantage of refunding opportunities ? when possible 17 Debt Repayment Sources General Fund $ 77.2 million ? School’s portion is $40.3 million ? Water & Sewer Fund $ 13.2 million ? Storm Water Fund $ 1.6 million ? Dedicated Sources $ 32.2 million ? Dedicated Sources Includes ARP, Town Center TIF, Major ? Projects Fund, TGIF, & Open Space 18 Decision to Use Debt Review of Capital Improvement Program ? Needs Review of Non-Debt Funding Options ? Expected Life of the Capital Project ? Debt is Appropriated as Last Choice ? 19 Major Types of Debt Available General Obligation Bonds ? Charter Bonds ? Referendum Bonds ? Utility (Revenue) Bonds ? Appropriation Backed Debt –Requires ? City Council’s Dedication of Revenue Public Facility Revenue Bonds ? Lease/Purchase of Equipment ? 20 Debt Capacity In Addition to Current 6-year CIP $63 million before exceeding Charter Bond ? Capacity $122 million before exceeding the $2,400 debt ? per capita figure 21 The Long View Future Debt Requirements –Council Priorities ? Major Transportation Projects ? Southeastern Parkway ? Completion of Partially Funded Roadways ? Waste Management ? Fire Stations ? Difficult to add many new projects ? Reduction in Real Estate Tax Rate, over time, could reduce ? cash to support CIP, and will put pressure on more debt Issuance of new debt will need a dedicated revenue source ? Debt is a serious consideration for all levels of government in ? America 22