Monday, November 4, 2019
Town Staff: "Bond Finance Golf Course/Community Center Improvements"
Staff recommends $3.2 Million in bond financing
Oro Valley Town Manager Mary Jacobs is recommending that the town issue bonds to finance almost half of the $7.2 million in funding proposed for golf course and community center improvements.
This recommendation is in response to the October second Oro Valley council request that staff "...review and provide an analysis and recommendation on financing options for the capital investments needed for the Town’s community center and 36 holes of golf."
Spending pegged at $6.8 million but that may not be all!
Plan to "borrow" from the General Fund
The staff plan "borrow" $2.1 million from the town's general fund. This is the fund that pays for town operations. The funds are forecasted to be repaid in fiscal years 2021-2024. No interest is to be charged on this debt.
The fund currently owes the general fund $1.19 million.
Bond interest could be taxable to the lender, thus making the bonds relatively expensive
One of the advantages of bond financing that governments enjoy is that the interest paid on their bonds is not taxed to the lender. These are called "tax free" bonds. Thus, the bonds carry the lowest interest rate of all.
"Staff has not discussed the potential structure of the bonds (specifically bonds for improvements of the golf course) with the Town’s bond attorney to determine if they will qualify for tax-exempt status, given the use of a commercial operator for the golf course."
Sales tax increase would likely become permanent
The bonds, regardless of their tax status, will be backed either by the "full faith and credit" of the town (general obligation bond); or by a lien on sales tax revenue, state shared revenue, and permit and revenue fees (excise tax bond). Otherwise, the bonds would not be sale-able in the market. Either way, the town is obligated for as long as the bonds are in circulation, which will be at least 10 years. Thus, the town will be required to keep its already high sales tax rate in place.
No public vote required.. but history says "no bonds"
The bond decision is entirely up to the council. No public vote is required.
However, council does not have to look far to understand that residents prefer "pay as you go" funding over bond funding. In the past Oro Valley residents have rejected a handful of bond proposals by at least a 70% majority.
The residents want local government to live within its means.
In 2013, former Town Manager Greg Caton acknowledged this: “In 2008, our voters told us they didn’t want to issue bonds for a big-ticket expense [Narjanja Park improvements], and we heard them loud and clear." Instead of bonds, Caton noted: "Our new approach to developing Naranja Park lays down the required infrastructure, then lets us add amenities a la carte, as funding is available, without going into debt or issuing bonds."
Council discussion of this is Wednesday
Town Council will consider these staff recommendations at this Wednesday's meeting. A follow-up discussion will occur on November 20.
Want to know more about bonds? Read our Bond Primer"
Source of staff recommendations