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 " 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!
Click on picture to enlarge
"A total project budget of $6.8M has been used in the assumptions for the financing options; however, in the future, a detailed project scope will be required to determine an appropriate project construction budget and will likely differ from the $6.8M used for these assumptions." $3.8 million is for golf course improvements while $3.0 million is for community center improvements.

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.
bonds compared to corporate bonds. In this case, however, the bond funds are going into a community center and golf fund that includes a nongovernment purpose: The operation of a golf course that is run by a private sector contractor.

 "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