Thomas Jefferson, writing to his close friend John Taylor in a 1798 letter, bemoaned the fact that “the principle of the present majority is excessive expense [sic]; money enough to fill all their maws” (to be understood as the gullets of a greedy bunch).
Jefferson grudgingly conceded, “Nothing then but excessive taxation can get us along.”
He suggested to Taylor—whom Historian Clyde N. Wilson describes as a man who possessed “a radical-populist suspicion of capitalism, ‘progress,’ government and routine logrolling politics”–”I wish it were possible to obtain a single amendment to our constitution; I mean an additional article taking from the federal government the power of borrowing… bringing & keeping the government in real unison with the spirit of their constituents.”
Even though Jefferson penned his remarks some 220 years ago, they could just as well appear in this week’s “Letters to the Editor.”
If you’ve been paying attention, of late, we’ve been hearing rumblings at the local level about government borrowing for capital improvements; some $10 million.
Minnesota Statute defines Capital improvement as “acquisition or betterment of public lands, buildings, or other improvements within the county.”
While I, for one, don’t like to invent ways to spend taxpayer dollars, it is one of life’s somber realities that buildings, roads, and bridges deteriorate over time …a reality this body of mine confronts on a daily basis.
According to the Municipal Securities Rulemaking Board, in 2016, more than $3.7 trillion in municipal bonds of all types were in force nationally, reflecting local government’s need to prop up its “sagging” infrastructure.
Long-term debt is commonly used to finance large capital assets such as infrastructure, buildings, and large pieces of equipment. While it’s true that borrowing increases the total cost of the asset, given the addition of interest, it also allows local governments to acquire or build capital assets sooner by borrowing up front for assets that they could not otherwise fund from existing cash resources–or direct levy. By spreading out the debt payments over many years, local governments can, hopefully, smooth out their expenses and create a more predictable cash flow.
The objective of any capital improvement budget policy should be to ensure maintenance and replacement of public infrastructure and equipment in the most cost-efficient manner.
To begin the process, a county usually adopts a Capital Improvement Plan (CIP). According to Minnesota State Statute, “the plan must set forth the estimated schedule, timing, and details of specific capital improvements by year, together with the estimated cost, the need for the improvement, and sources of revenues to pay for the improvement.”
A creditable CIP, as suggested in the City of Duluth’s CIP, “should provide a framework for managing capital financing and economic development activities in a way that preserves the public trust and balances costs to current and future taxpayers without endangering essential county services.”(The word “essential” warrants emphasis here).
Cook County Auditor/Treasurer Braidy Powers estimates the County’s total bonding capacity to be just over $48 million. This figure is arrived at by using a formula defined by MN State Statute. Braidy noted, “The only debt that counts against the debt limit is the debt that is paid by property taxes. The sales tax and lodging tax-supported debt does not count against the overall limit. So currently, only the existing equipment bonds ($1 million) count against our limit.”
Mechanisms for repaying debt include tax revenues, user fees, and special assessments.
Cook County has employed all three of these mechanisms over the years with the reintroduction of the 1 percent sales tax in 2010 and the half-cent sales tax implemented in 2017.
Two years ago (2016) the County paid off Capital Improvement Bonds issued in 1996 that financed the Courthouse expansion and Law Enforcement Center. While the total cost of these projects was a bit over $7 million, the County was able to cover $1.3 million of this cost with monies it had accumulated in its building fund. Annual payments toward the end of the 20-year term amounted to $380,000 or approximately 5 percent of the levy in 2016.
The approximate total of the County’s bonding obligations at the end of 2016 amounted to approximately $19 million. About half of this was for construction of the YMCA. It should be noted, however, $16 million of this figure consists of projects funded through the previously mentioned 1 percent Sales Tax. The equipment bonds are the only ones we are funding through the levy.
When you objectively assess need and weigh opportunity—the present anticipated interest rate (projected to be 3.2 percent) is half the rate assessed in 1996 (6.5 percent)—let’s just say the “iron may be hot.”
“The favorable interest rate was certainly a big incentive for the board to move forward,” noted Braidy.
Projected bonding is $10 million with about $7 million covered by the half-cent sales tax instituted in 2017 ($750,000 in new revenue is expected to be collected each year). Impact on the levy is projected to be $3 million over the 20-year term. $186,000 in debt retirement has been built into the 2018 budget, although payments that include principal (roughly $208,000) will not begin until 2020. This will impact the levy by 2-3 percent annually.
The single biggest expense being proposed is refurbishing County Road 17 (Mineral Center Road) in Hovland; it’s estimated to be about half the bonding. There are also two bridges included, replacement windows in the courthouse, Hovland firehouse (which is in desperate need of repair), and updated Pictometry—aerial photography designed to provide a more natural perspective and make objects easier to recognize and interpret.
Before bonds can be issued, the county must publish a notice of its intention to issue the bonds and the date and time of a hearing to obtain public comment on the proposal.
If you have any interest in voicing your opinion on the proposed Capital Improvement Plan, you may wish to mark your calendar for the upcoming public information sessions to be held in the Cook County Commissioner’s room at the courthouse, April 9 at 6 p.m. or April 10 at 10 a.m.
Keep in mind, as Jefferson’s friend Taylor might forewarn, you might be in for a bit of “routine logrolling.”
Former Cook County Commissioner Garry Gamble is writing this ongoing column about the various ways government works, as well as other topics.
Leave a Reply