Manchester receives annual financial report | New
While the city of Manchester has experienced a lower growth rate than in the past, its aggressive debt repayment strategy continues to put it in a good fiscal position to move forward, according to a new report.
Manchester City Council recently received its annual Tax Increase Funding (TIF) report, a comprehensive review of the city’s various debts and revenues, from financial expert Maggie Burger, senior vice president of Speer Financial at its October 11 meeting.
Each year, one of the report’s most anticipated findings examines the city’s year-over-year growth rate for its total valued assessment.
Manchester has seen growth rates of as high as 5-7% in the past, but this year Burger said Manchester was in a period of “leveling”, like many other communities in eastern Iowa.
Manchester’s valued valuation is currently $ 366,276,800, up from $ 362,266,712 last year, for a growth rate of just over 1%.
Valuation is a number that is central to the city’s budgeting process, as it relates to the amount of debt the city can legally incur and also serves as a crucial number when calculating where the council sets. its property tax levy.
Using the current valuation, Manchester’s statutory debt limit is 5% of its total value, or $ 18,313,840.
As of July 1, the start of the new fiscal year, the city had $ 5,840,000 in outstanding bond debt and $ 150,200 in TIF forgiveness agreements. After July 1, the city issued an additional $ 3,265,000 in bonds.
After all the numbers are calculated, the city is left with $ 10,278,840, or about 56% of its debt capacity, a number that Burger says is a healthy rate.
Burger said that while the city has gone from 67.76% of its remaining debt capacity last year to 56.14% this year, that was not a cause for alarm.
“I’ll say this year was one of your most important shows, but you had a lot going on – there were a lot of projects that needed to be funded,” Burger said. “But we don’t expect your GO to look like this in the future just because there has been a lot of things that have happened and those things have resulted in growth for the community. “
The city has also imposed a 20% contingency to use in an emergency, so for all practical purposes, council considers it has 36.13% left, or $ 6,616,072 of its capacity. indebtedness.
Burger also noted that Manchester’s strategy of underwriting bonds with shorter maturity periods and implementing more aggressive repayment schedules helps the city maintain a healthy financial balance.
“The majority of our cities your size don’t issue 10-year debt, they issue 12- and 15-year debt,” she said. “So really, your refund gives you a head start since you get things paid for faster. “
The city is expected to repay $ 1,070,000 of its debt during the fiscal year, and if the council no longer issued GO debt, it would have paid everything by 2033, even taking into account only a rate of cautious growth of 0.5%.
While the 13-page report may be difficult for those who are not in the financial field to understand, an important aspect to note is that the debt incurred by the city is very different from the debt incurred by an individual – namely that unlike household debt, there are very strict rules on how and even when city debt can be repaid.
In Iowa, there are several different categories of debt that a municipality can incur, including general obligation (GO) debt, income debt, and debt repayable through TIF funds.
For Manchester’s GO, Burger said this is the simplest type of debt the city can issue because it is fully payable through property taxes. But for some of these GO bonds, other sources of revenue can be used, such as TIF, franchise fees, and road use taxes.
For the total principal amount, Manchester has $ 9,105,000 in general obligation debt, which counts towards its constitutional debt limit.
While these GO bonds use other sources of income for repayment, most of it will be repaid through property tax revenues. In fiscal 2023, council will levy $ 695,900 in property taxes to pay off these obligations.
“The nice thing about general obligations is that you get to decide how they’re paid each year when you budget,” Burger said. “As things change in the city, and fees and expenses maybe get a little better than expected, you can make that decision. “
For some GO bonds, after an agreed period of time, some bonds become “redeemable”, which essentially means that the city then has the option of refinancing, paying them off in full, or making larger payments to pay off the longer loan. quickly. .
Manchester currently has three callable bonds, the 2013 ($ 105,000), the 2014 ($ 85,000) and the 2015A ($ 55,000).
Given that all three bonds will be banned by 2025, the board will likely stay the course. Burger also noted that with current bond interest rates varying between 1.2% and 1.8%, “there really would be no savings if you had to refinance.”
The second type of debt that the city can hold is tax debt, which is typically used for projects such as water, wastewater, and sewage infrastructure.
Unlike GO Debt, Tax Debt does not count towards the city’s debt capacity and can only be repaid using the source of revenue.
Because tax debt isn’t counted against debt capacity, it frees up more money for things like street repairs, capital projects, and incentive agreements.
At present, Manchester has three income loans: the 2008 SRF for Sewerage ($ 2,930,000 remaining), the 2011 SRF for Water Loan ($ 105,000) and the SRF for Water. 2019 water ($ 460,000) for a total of $ 3,495,000.
When taking out these income loans, the board again chose to be aggressive with its repayment schedule, opting for terms of 10 and 12 years instead of 20 years.
Burger said it would give the board an edge in the future when more infrastructure projects need to be done.
“Most of your water and sewer debts will fall due by 2029 and I will say that this is not the case for most cities because they are engaging in fairly large projects”, a- she declared. “Most of these projects are regulated by MNR, so they’re not in your hands – they’re projects you have to do because they say you have to do them.”
Unlike household finances, municipalities are not really able to “save” for large projects, and when an expensive business that cannot be absorbed by the annual budget presents itself, the only realistic way to finance it is. to issue debt.
Council member Dean Sherman noted that as the city prepares to pay off its tax debt, it is also approaching a time when more of these utility systems will need to be upgraded, repaired or replaced.
“It’s not like this is going to go away and we can live debt free, but for me it’s really exciting that we’re about to get paid because it puts us in a good position when the DNR says that we need to spend another $ 10 million on a new sewage plant, ”Sherman said.
Burger agreed, adding that a city doesn’t yet want to be in a position where it always pays for a project while another big one is just around the corner.
As for its TIF obligations, the municipality sets its appropriation agreements on an annual basis.
In short, TIF can be used when a project or development increases the value of a specific property.
For example, this generates a lot of annual tax revenue of $ 1,000, but a developer comes in and raises that valuation to $ 10,000, the board has the option of using that incremental increase of $ 9,000 to offer incentives or even fund. certain types of projects.
The city currently has 11 TIF agreements on the books, amounting to $ 163,200 in earmarked discounts annually for fiscal year 2023.
Since its inception, Manchester’s TIF districts have accounted for $ 105,539,719 in TIF assessed value, and at the current rate of $ 29.81 per $ 1,000, the city has $ 3,146,223 in TIF income. After factoring in the $ 388,498 in debt service obligations and $ 150,200 for annual forgiveness agreements, Manchester has $ 2,607,525 in “unclaimed” TIF dollars.
But Burger said they are not recommending trying to “claim” those dollars because all those “unclaimed” TIF dollars will go back to city, county and school budgets.
“You are using the TIF the way it is supposed to be used – to meet all of your obligations every year,” she said.
Looking back over the past 16 years, Manchester has consistently paid off between $ 881,000 and $ 2,597,000 in debt per year – a figure which becomes more remarkable when one takes into account the growth in the value of the city during this period.
In 2005, the city had an appraisal of $ 197,809,821 with a debt limit of $ 9.9 million and a principal amount of $ 2.5 million in GO and TIF debt compared to current figures of 362,226 $ 712 with a debt limit of $ 18,113,336 and a debt of $ 5.8 million in GO and TIF as of June 30.