ATTACHMENT 2
AGENDA #4
MEMORANDUM
TO: Mayor and Town Council
FROM: W. Calvin Horton, Town Manager
SUBJECT: Consideration of Schedule for Issuance of Bonds
DATE: March 30, 2004
The Town Council has called today’s work session to discuss options for the $29.36 million in bonds authorized by voters in November 2003. For the Council’s consideration we have outlined a potential schedule for allocating the bonds, along with a few options.
BACKGROUND
In November 2003, voters approved $29.36 million in bonds. The bond projects are assigned to five individual categories as follows:
- $5,600,000 for Sidewalks and Streets
- $16,200,000 for Library Facilities
- $5,000,000 for Parks and Recreational Facilities (Greenways)
- $2,000,000 for Open Space and Areas
- $500,000 for Public Buildings (Energy Efficiency)
The Council earlier concluded that the $5.6 million Sidewalk and Street Improvement Bonds would be used as follows: $2.6 million for sidewalk construction, $2 million for downtown streetscape improvements, $350,000 for pedestrian amenities, and $650,000 for neighborhood traffic calming projects and pedestrian and bicycle safety improvements.
PROPOSED ALLOCATION
Bonds may be issued for seven years from the date of voter approval. With permission from the Local Government Commission, the period to issue the bonds may be extended to ten years. At this time, the Council has not approved a schedule for selling the 2003 bonds. At the Council’s planning session on January 15, 2004, we presented information showing the potential impact of the sale of bonds on the Town’s property tax rate (see Attachment 1).
Before bonds can be sold the Council will have to decide which elements will have priority for funding and what amount will be included in the first sale. Subsequent priorities and amounts of issue can be decided by the Council in future years.
The following table provides one option for scheduling issuance of the 2003 bonds. The proposal is based on the assumption that the bonds will be sold in four increments, starting with $4 million in 2004, followed by $7.75 million in 2006, $8.805 million in 2008, and $8.805 million in 2009.
|
|
Year of Issuance |
|
|||
|
|
2004 |
2006 |
2008 |
2009 |
Total |
|
Sidewalks and Streets |
|
|
|
|
$5,600,000
|
|
A. Sidewalk Construction |
600,000 |
900,000 |
600,000 |
500,000 |
2,600,000 |
|
B. Pedestrian Amenities |
100,000 |
100,000 |
75,000 |
75,000 |
350,000 |
|
C. Neighborhood Traffic Calming and Pedestrian and Bicycle Safety Improvements |
300,000 |
150,000 |
100,000 |
100,000 |
650,000 |
|
D. Downtown Streetscape Improvements |
500,000 |
1,000,000 |
250,000 |
250,000 |
2,000,000 |
|
Library Facilities |
500,000 |
400,000 |
7,480,000 |
7,880,000 |
$16,260,000 |
|
Parks/ Recreational Facilities |
300,000 |
4,400,000 |
300,000 |
|
$5,000,000 |
|
Open Space and Areas |
1,200,000 |
800,000 |
|
|
$2,000,000 |
|
Public Buildings (Energy Efficiency Projects) |
500,000 |
|
|
|
$500,000 |
|
Total |
4,000,000 |
7,750,000 |
8,805,000 |
8,805,000 |
$29,360,000 |
Proposed 2004 Allocation
The proposal calls for a bond sale of $4 million in 2004. The amount is proposed to be the smallest of four bond sales in order to hold down the overall debt load the Town will be incurring in the coming months as we also borrow to finance construction of the Town Operations Center.
In the proposed 2004 allocation, $700,000 for open space purchases is required to pay for open space acquisitions that have already been made. There is flexibility for allocating funds for the remainder of the bond projects.
Funding was provided for sidewalk construction, downtown streetscape and traffic calming as these projects have been a high priority of the Council.
The proposal includes funds that would enable the Council to proceed with the Library expansion project, covering costs associated with the initial design phase leading into the Special Use Permit process. We estimate that another $400,000 would be needed in 2006 for additional design work leading to construction of the facilities.
Funding for Parks and Recreation bond projects would enable the Council to start design work on two trails, and supplement grant funds approved by the Council to construct a pedestrian-bicycle bridge on Dry Creek.
We included funding for energy efficiency projects in 2004 to provide the Council the opportunity to incorporate energy efficiency improvements in proposed capital projects such as the renovation of the Chapel Hill Community Center.
Other Options
The issuance of the Library Facilities Bonds for construction could be moved up to 2006 and 2008; however, this would require shifting much of the bond allocations for other projects to the 2009 bond sale in order to mitigate the increase in new debt taken on by the Town at one time.
The Council has the most flexibility in deciding the amounts and timing of the bond allocations for Sidewalks and Streets bond projects and Public Buildings bond projects.
The majority of the Parks and Recreation Facilities Bond allocation is for two construction projects that would be funded in the 2006 bond sale. The Council could decide to delay the construction of the $2.208 million Bolin Creek Trail and the $2.16 million for the Morgan Creek Trail because these projects are not tied to the anticipated Surface Transportation Program/Direct Allocation funding schedule.
There are cases where the Council’s options are more limited. We recommend that the proposed 2004 bond sale include at least $700,000 for open space in order to reimburse the General Fund for previous open space purchases. In addition, portions of the proposed allocation of Parks and Recreation Facilities Bonds for greenway projects are timed based on when the Town will need to provide a local match for future anticipated Surface Transportation Program/Direct Allocation funds.
DESCRIPTION OF BOND PROJECTS
Following is a discussion of the bond projects and the proposed bond allocation. Please see the Appendix (Attachment 2) for a more detailed discussion of all of the bond projects.
Sidewalks and Streets Bonds ($5.6 million)
Sidewalks ($2.6 million)
The proposed allocation of 2003 bonds for sidewalk construction projects would provide $600,000 in 2004, $900,000 in 2006, $600,000 in 2008 and $500,000 in 2009. In addition to building sidewalks on the Town’s Sidewalk Priority List, the bond funds could be used to meet the local match requirement for programmed State improvements such as South Columbia Street in 2007 and Old Durham Chapel Hill Road in 2009.
Pedestrian Amenities ($350,000)
These projects include the installation of pedestrian crossing signals at five intersections at $50,000 per location; the completion of signal system timing studies to accommodate pedestrian crossings in five street corridors at a cost of $30,000 total; and installation of other improvements, including pedestrian heads with countdown displays, markings and signage.
The allocation of bond funds for these projects in a given bond sale could range from zero to the full amount, $350,000. The proposal includes $75,000 to $100,000 in each of the four bond sales.
Neighborhood, Pedestrian and Bicycle Safety Improvements ($650,000)
These projects include installation of relatively low-cost improvements, such as speed humps and raised crosswalks and improved pedestrian and bicycle signage. The proposed allocation would provide funding in each of the four proposed bond sales: $300,000 in 2004, $150,000 in 2006, $100,000 in 2008 and $100,000 in 2009.
Downtown Streetscape ($2 million)
We estimate that the Town has sufficient funding from the remaining 1996 Bonds to continue installing streetscape improvements through the summer of 2004. These projects have previously included sidewalk reconstruction, site furnishings and portions of a new street and pedestrian lighting system, consistent with the Downtown Streetscape Master Plan adopted by the Town Council in 1993.
The recommended proposal includes $500,000 for streetscape projects in the 2004 bond sale, followed by $1,000,000 in 2006, $250,000 in 2008 and $250,000 in 2009. The Town could encumber $400,000 of the proposed 2004 streetscape immediately to install new street and pedestrian level lights and mast arm signal poles in areas along Franklin Street where the necessary infrastructure is in place. The remaining $100,000 from the proposed 2004 allocation could be used to cover the material costs of a typical Public Works sidewalk reconstruction project in 2005.
Library Facilities ($16.26 million)
Because of the level of funding required for the Library expansion, the timing of the sale of the $16.26 million in Library Facilities Bonds has implications for all of the bond projects.
The proposal includes $500,000 in the 2004 allocation and $400,000 in 2006 for planning and design work associated with the Library project. We believe this funding will be sufficient to cover the costs associated with preliminary design and other work needed in advance of actual construction.
The proposal calls for providing funds for construction of the Library expansion in each of two bond sales: 2008 and 2009. The 2009 sale would be necessary to provide for the total costs of the library expansion.
Parks and Recreation Facilities (Greenway Projects) ($5 million)
Parks and Recreation Facilities bond allocations include funds for greenway projects in accord with the Town’s adopted Greenways Master Plan. Some bond funds would be needed to provide the required local match for leveraging other sources of funds. The proposed 2004 allocation of $300,000 includes:
· $125,000 for construction of a Dry Creek bicycle and pedestrian bridge. In 2003, the Council accepted a $30,000 grant for construction of the bridge; we estimate that $125,000 is needed to complete the project.
· $75,000 for design and engineering work on the Morgan Creek Trail project. This funding level includes $20,000 for a local match for $80,000 in Surface Transportation Program/Direct Allocation funds.
· $100,000 for the concept plan for the segment of the Bolin Creek Trail from Airport Road to Estes Drive Extension.
Funding for the design work on the Morgan Creek and the Bolin Creek trail projects would be needed in 2004 if construction funds would be provided as shown in the proposal for 2006.
The proposed 2006 allocation is based on providing $2 million for the Morgan Creek trail construction and $2.2 million for the Bolin Creek trail construction. The allocation total also includes matching funds totaling $32,000 for design work on the Dry Creek and Upper Booker Creek trails.
The 2008 allocation includes $300,000 for the local matches required to leverage Surface Transportation Program/Direct Allocation funds for construction of the Dry Creek and Upper Booker Creek trails.
Open Space and Areas ($2 million)
The proposed $1.2 million allocation in 2004 for open space purchases includes reimbursement to the General Fund of approximately $700,000 that has already been spent for land purchases. This would leave about $500,000 for additional purchase of open space.
We propose issuing the remaining $800,000 in 2006, although the availability of properties eligible for consideration as open space is not predictable. The Council could issue more Open Space Bonds earlier, or reimburse if necessary to take advantage of opportunities.
Public Buildings ($500,000)
The proposal includes allocation of the entire $500,000 in Public Buildings bonds in a 2004 bond sale. This funding, however, could be provided in any or all of the four bond sales. Providing funding in 2004 could help the Town install energy efficiency improvements as part of capital renovation projects in the Capital Improvements Program, such as the renovation of the Chapel Hill Community Center.
The energy efficiency projects would provide the Town the opportunity to consider establishing an “energy bank,” a revolving fund where reduced energy costs resulting from the improvements are set aside for use in future energy efficiency projects.
FINANCIAL IMPLICATIONS
In the FY 2004-05 Budget Status Report of March 24, 2004, Priority I additions to the 2004-05 budget include a bond issuance of $4 million from the November 2003 voter-approved bonds. Repayment of the issuance would take place in semi-annual payments beginning six months after the bond sale. If the bonds were issued in the first half of the 2004-05 fiscal year, one payment of about $205,000 would be made in that year. Full year payments would begin in fiscal year 2005-06, would cost about $400,000 and would decrease by about $10,000 each year.
The chart below shows the combined effect on total borrowings, debt service payments and a tax rate equivalent for current debt, required debt for the Town Operations Center and the possible issuance of $4 million in General Obligation debt.
In addition to determining the timing and amount of the first bond issuance, the Council will need to determine the timing and amount of subsequent issuances. Under the proposal put forth in this working paper future issuances could occur in issues beginning in 2004 and ending in 2009.
We have used a 5% interest rate in our calculation of potential debt service costs. The actual rate varies, depending on a number of variables, including: prevailing interest rates at the time of issuance; how much the Town has already borrowed or plans to borrow in the current year; and the managerial and fiscal health of the Town. In March 2003, the Town’s bond ratings were confirmed at triple A (Aaa) from Moody’s Investor Service, the highest rating attainable from Moody’s, and double A plus (AA+) from Standard and Poor’s, the next to highest rating attainable. Debt service payments will substantially increase when we borrow for the Town Operations Center. Rating agencies consider factors including the following when making rating decisions:
· Debt per capita
· Debt as a percentage of total assessed property value
· Debt as a percentage of total expenditures
· Debt as a percentage of fund balance
We will update this information periodically for the Council.
CONCLUSION
We will be pleased to assist the Council in developing options for consideration as you desire.
ATTACHMENTS
- Preliminary Overview Debt Issuance and Repayment Options (from the January 15, 2004 Council Planning Session) (p. 9).
- Appendix: Planning Information on Bond Categories (p. 14).