Anne Garcia Garland Oak Ridge City Council - Blog

On the $20million bond issue

Tue, 22 Sep 2009 13:36:20 +0700

When city council met on September 14th, the largest discussion on the agenda was a resolution for a $20million bond issue. (It was also last on the agenda so people wishing to speak to it were there until late.) There was little in the request for the resolution or the resolution itself to indicate what particularly the money had been, was being, or would be spent on. Councilwoman Ellen Smith and I asked during the agenda review session on September 7th for details of what the issue covered. At 4:35pm on Friday, September 18th, council received a lengthy email from Deputy City Manager Steve Jenkins giving some detail about the expenditures. I didn't see that email until some time on Sunday when it would have been too late to ask for sufficient space in the Monday Oak Ridger to print the information. Nor did we see that information presented in writing at the council meeting. So I felt the request by citizen Charles Jones that council postpone acting on the bond request until the community's questions about what was included in the bond could be answered was quite reasonable.

Then citizen and Charter Commissioner Pat Fain spoke to council expressing her dismay at conducting city finances by borrowing for ongoing maintenance, among other things. I had already decided to hold off voting "for" on an issue decided two years ago in principle in order to allow time to explain to the general populace what was being considered. When His Honor the Mayor chose to chastise Mrs. Fain for "attacking" the city finance department, my vote became not just "no." Eventually I would have to vote for the bond because it will take us some time to get out of this pattern for doing the city's business by credit card mentality and we still have to run a city. But I feel strongly that any citizen who takes the time to understand an issue or question it, to come to council meeting and speak, deserves the council's and the city's respect and attention.

Here's the thing. I believe we need to enact a plan for changing our finance philosophy
so that for all ongoing maintenance and any short term projects we pay as we go and only borrow for projects which will outlast the notes we make to pay for them. I also advocate knowing what we do with any debt we currently owe. If we borrow to extend an indebtedness, I believe we should know exactly what amount of which borrowings are being extended.

I have a meeting with a citizen on Thursday, September 24th, to listen to a concept for how we go about changing the way we do city finance. I hope that other citizens will write or call or make appointments to visit all of us on council to share ideas and opinions on this. Small or large, the thoughts you bring to us increase the total knowledge with which we approach every issue.
Below is the content of Mr. Jenkins' email on the detail of the bond issue:

"This email is in response to Council discussions, concerns, and questions regarding the $20,000,000 bond issue that is on the agenda for the September 14, 2009 City Council meeting.

A: This issue covers the period of FY 2008 through FY 2011. This issue was planned, discussed in a City Council work session, and initially approved, including legal notices posted in the newspapers, over 16 months ago. The list of projects and programs proposed to be funded by this issue has changed very little and is as follows:

Completion of the high school $6,500,000 – citizen referendum
Electric Distribution expansion and improvements $4,000,000 - See attached listthat only covers FY 2009 and FY 2010

ETTP system improvements – Approximately $400,000
Under ground cable replacement program – Program Approved by City Council May 24, 2005, Resolution 5-57-05 $800,000 to $1,000,000 annuallyfor 4 years. Primarily Dillard Construction Contract and wire purchases.
Other system improvements and maintenance – transformers, wire, labor for distribution system

Electric Substation improvements and expansion - $1,000,000 Substation 800
Water and Wastewater distribution expansion and rehabilitation programs. $4,000,000 - includes SR95 $1,600,000 - See Attached list
Water and Wastewater Plant improvements $1,000,000 – See attached list
Street Resurfacing $2,500,000. This will bolster reserves in the General Fund, which will allow more flexibility in setting future tax rates.
Equipment replacement $750,000.

a.       Network Security and Communication Equipment Storage Area Network - Core Switching and related communication equipment $300,000

b.      Fiber ring to enhance communication between all City facilities $300,000 – only a portion of the total cost - Balance of funding comes from Schools and other funds.

c.       Other Equipment $150,000 – see attached list

The projects and programs listed for the utility and equipment rental funds far exceed the amount of debt proceeds that are proposed for those funds. The good news is that the funds have some capacity to pay for capital projects without borrowing additional money. The bad news is if the City continues to spend at this pace, the City will be either raising rates or issuing more debt in the next 3 to 5 years.

B:   Cede & Co. is the subsidiary of the Depository Trust Company (DTC) which is the electronic clearing house for bonds, stocks and numerous other securities. There is no cost to the City for this service. There are a couple of other smaller, foreign clearing house companies, but DTC handles the majority of all transactions in the United States. The only other remaining option would be to issue actual paper bonds that would be very expensive and virtually unmarketable in today’s environment.

C:   There are two types of Build America Bonds (BABs):

1.       "Tax Credit BABs"

a.       Tax Credit BABs provide a federal subsidy as a refundable tax credit in the amount of 35% of the interest paid on the bonds to the bondholders.

b.      Tax Credit BABs are less attractive to the investor since they are taking on income tax risk (especially with most economists predicting a rise in income taxes).

c.       Due to low investor demand, the net rate to the City on Tax Credit BABs would be substantially higher than Direct Payment BABs and even higher than traditional tax-exempt bonds.

2.       "Direct Payment BABs”

a.       The Direct Payment BABs provides a federal subsidy as a direct payment to the issuing agency (i.e. the City) in the amount of 35% of the interest paid to the bondholders.

b.      The City is neutral to the Income Tax risk as it is not subject to any income taxes.

The City, not the investor, chooses to issue the type of debt that will result in the most favorable net interest cost for the City. Depending on market conditions at the time of sale, this could be either of the above or traditional tax exempt debt. The real risk to the City under the Direct Payment BABs is that the Federal Government could stop the rebates or default on its obligations. Neither is a likely scenario, but it could happen.As is common with fixed rate bond issues, regardless of the type of debt issued, there is a 10 year call provision for the bonds.

D: It should be noted that any projects that the City has funded through the issuance of long term debt have at least a 5 year capital life. The City cannot borrow long term debt for operations in the same way that a personal credit card would be used by an individual to purchase consumables. The City has never borrowed short term debt to fund operations nor is there any plan to do ever do so.

E: A few reasons why the City reimbursed itself with this issue are shown below.

The most important reason is that market conditions made borrowing difficult last year. By using reserves, the City was able to continue the projects, and delay the borrowing until market conditions improved.
For construction projects that span a longer period, there is more information related to actual project costs and revenues, which keeps the City from over or under borrowing.
There are also federal spend-down requirements that could create penalties if a project is delayed.
In some cases the City can actually shorten the debt service payments, which saves the City interest costs.
Staff generally tries to issue debt in larger amounts for several projects, rather than small issues for each. This saves issuance costs for debt issues.

In the future, staff may recommend the issuance of debt in advance of the project or program. Markets conditions, type of debt, and type of program or project will be primary factors in making that determination. Of course, City Council has final approval of any bond issue that staff recommends.

F: Finally, this bond issue will be competitively bid. The investment firm or bank with the lowest overall cost to the City will be awarded the bonds. This assures that the City will get the lowest true interest cost available on the day that this debt is sold.

Representatives from Cumberland Securities will be available to answer questions.

Steve Jenkins

Deputy City Manager

SR 95 Work session

Tue, 07 Jul 2009 06:02:12 +0700

The work session at the Civic Center Social Room was well-attended by citizens. Steve Byrd and Gary Cinder of the public works department put togther the drawings illutrating the original TDOT plan and the changes TDOT has agreed can be made. Mr. Byrd explained the drawings to the five Council members and the citizens. In an unusual move for a work session, the Mayor, Tom Behan, opened the meeting to comments and questions from the citizens.

So here is where I have come to so far in this process. I still believe the city needs to create a process for insuring that residential buyers are made aware, before closing, of all the restrictions and easements on the property. I do not believe that this is interference in developers' rights to sell their property. (I would like it to include commercial properties as well.) This is a matter of existing citizens looking out for potential neighbors.

As for the options on widening SR 95, I was at last persuaded that there is a legitimate reason for not postponing the road any further - absolutely provided that the proposed changes are put into place to protect, as much as possible, the existing residences. I am not convinced that 4-laning 95 will magically attract industry to Horizon and Heritage Centers that they have not attracted heretofore. There are, however, additional residents on the westernmost end of the city whose connection to those of us at the center of town will remain tenuous at best so long as the road is the uncompleted bottleneck it has been. I am hoping that the changes to TDOT's design will be accepted by the residents of Sweet Gum and Southwood as a best compromise outcome for the city residents as a whole.

I still regret that some people have been caught in what amounts to a "caveat emptor" dilemma. I expect the city to take very seriously the need for plainer disclosure for all our potential neighbors. This is a quality of life issue on many fronts.

First Council Meeting June 22, 2009/ SR-95

Thu, 11 Jun 2009 06:25:04 +0700

Among the issues which will be addressed at the June 22 council meeting will be lowering the speed limit on the remaining 2-lane section of SR-95(the state highway which is also the Oak Ridge Turnpike through the city) from 55 to 45 miles per hour. This section includes the part of the road which passes Southwood, an area which will be significantly affected by the ultimate widening of that section of road. The residents of the subdivision have circulated a petition asking that the state be requested to redesign that final section to reduce the impact on their neighborhood.

If I understood him correctly, CIty Manager Jim O'Connor tells me that what the state is offering to do is:

    - reduce the amount of clearing required along that section by installing a guardrail, and thereby

    - leave more trees and shrubs uncut.

He also says that the possibility of erecting a sound barrier wall along that section can be considered, though the state would expect Oak Ridge to pick up some part of the tab for that. On the other hand, his inquiries into how effective sound barrier walls are have indicated that many people who find themselves on the other side of one are less than delighted with the prospect from their windows and yards.

The contention Mr; O'Connor endorses is that Oak Ridge needs the 4-laning to complete the access to our industrial parks within the federal reservation. He also says that the state's position is that if they are caused to redesign this section, the project will go away for the immediate future. This may in part be because another environmental impact study would have to be done replacing the one done 9 years ago before Southwood was built.  The implication is that it could take another 10 years for this to be reconsidered..

I do not doubt that 4-laning the rest of SR-95 would contribute to the attractiveness of the Horizon Center for business location. I wonder, however, what part, if any, the lack of 4-lane access to I-75 without circling through Knoxville has played in the failure of Horizon Center to attract businesses.

One of the down-sides is that the state route through Oak Ridge is already a truck by-pass of Knoxville and has been for over 40 years. No measuring that I have heard about has been done to determine whether that truck traffic increased during the closure of I-40 through Knoxville. Mr. O'Connor asserts that this traffic is only going to increase more and that we need the 4-lane to handle it. (The speed and red light cameras will have an as yet undetermined effect on the truckers.) 4-laning SR-95 may be the state's way of not expending the funds to do the Blue/Orange/Magenta Route.

Maybe we could persuade the state to install a weigh station on SR-95 somewhere before the Kingston/Lenoir City cut-off. Since Oak Ridge has been used as a by-pass to avoid the weigh station on I-40 west of Knoxville, that might reduce the by-pass truck traffic

At any rate, what this feels like to me is the state of Tennessee using a form of blackmail to get Oak Ridge to agree to what the state designed based on the situation 9 years ago. What I wonder is, how are we responsible for the state's slow movement on route 95 and what would the state be doing instead of finishing the project it designed? And is this how we want to relate to TDOT now and forever? Are there not some better win-win solutions that support citizens' expectations? If Oak Ridge has failed to cause the developer to advise buyers of the nature of planned impacts on their properties and doesn't extend itself to mitigate that impact after the fact, how will this increase our attractiveness as a place to buy a home for all those new employees on the reservation whom the Chamber is so eager to gather in?

If we want to be an attractive place to live, we have to behave as though people are our most important concern. As though quality of life is as important as profit. It isn't simple. The concerns and effects of these issues are complex and difficult.

Observer Question to Council Candidates on Schools

Sun, 17 May 2009 23:39:54 +0700

   Oak Ridge has been justifiably proud of its education tradition for many years. Like every other school system we are facing difficult challenges to funding and operation. We have a greater percentage of children needing more and different attention as our demographics change. We have aging buildings. We have new immutable, sometimes illogical, and often unfunded mandates from the state and federal governments.

   Inflation continues and our taxes don't go as far as they did a decade ago. The schools and the city government face the same economic realities that the citizens do. We are also still in the embarassing place of paying teachers less that engineers or mechanics, no matter what we say our priorities are. Many people seem to disregard the basic premise that the education of everyone's children creates better "trickle down" wealth than any other government program.

   Still, we could be looking for creative solutions to some of our needs. Preschool and elementary years are the prime ages for learning additional languages. Those language skills translate into better grasp of English and of other studies. If we can't afford a shared language teacher, what about visiting volunteers who bring games and songs to class once or twice a month. We have many people here who speak Spanish, Russian, Chinese, and more.

   I would much prefer that all licensed drivers have had formal training. I have been told, however, that driver training has cost extra at ORHS for some time and was discontinued as a program because of low enrollment. Perhaps this is a state issue. Perhaps we should petition our legislators to direct that one can only get a license before 18 if they have had certified driver training.

   I am a bit annoyed by the implication of The Observer question to the council candidates. The way it is worded puts emphasis on attracting new residents and businesses. It seems to me we should focus on what produces the best learning experience for the people who are already here. We should work on additional ways to be flexible enough to adapt to changing populations of students.

Meeting the candidates

Sat, 18 Apr 2009 18:13:04 +0700

The DFET-sponsored Meet the Candidates evening at the Civic Center Thusday night was an interesting and encouraging event. All of the council candidates attended. Most touched on a couple of core issues for the city. I chose to introduce myself and let people come to me with their own issues and questions. One extremely intense and elegant lady asked me several pointed and serious questions about my views. She asked most of the candidates, I believe, but did not profer her own views on the matters.

    Here are some of my answers to her. Abatements: I think we need to be extremely cautious when "giving away" the citizens' money. If a project is worth doing, it needs to be financially viable in and of itself. It looks to me as though companies have been reading our record and consider us an "easy touch." At the same time, small businesses in Oak Ridge, small retailers and service businesses, play heck getting any consideration from the city at all. We want retail but we don't support simple needs of small retailers.

     Applewood: If people genuinely cannot afford decent housing, we as a city need to assist them in qualifying for subsidized housing. But we cannot submit to the bullying of absentee landlords who would leave their tenants without resources to have a safe and decent place to live. Whatever it costs on the front end will pay off over time if we stand firm against slumlords. (I get to use that term because I have been a landlord and know what is required.)

     Crime: Violent crime has, if Chief Beams is telling the truth, diminished here. What has grown is vandalism and drug trafficking. It is very frustrating for the neighbors of drug houses to keep calling the police when they witness drug sales activity. But we have to keep it up and believe that our officers want to arrest or drive away the sellers as much as we do. The department has to follow rules of evidence and they are frustrated by the widespread nature of the problem, too. But with Neighborhood Watch, good police officers, and persistent citizens, we can make these antisocial elements go elsewhere to try their trade.

I have much more to say but the point of a blog is for you to talk to me, too. Have at it, neighbors.