Friday, May 10, 2013

To Bond or Not to Bond: Please Weigh In

American Fork’s administration has proposed a budget for 2014 which addresses, at a cost of $350,000, the mandate of bringing public safety staffing into compliance with the Affordable Care Act. To do so, it must neglect five of my top priorities:
  1. Two narcotics detectives
  2. A $30,000 increase to library collections (half that amount was awarded)
  3. Ongoing tree planting and pruning funds (deficient by $14,000)
  4. A full-time economic development director
  5. Road maintenance
Road maintenance is the lion’s share of the problem. Now funded at $500,000 per year, the roads accrual account is an eighth to a half of what it should be (depending on the estimate) to keep pace with needs.
Even as American Fork’s roads deteriorate, maintenance costs continue to escalate. This leaves us facing a situation perilously close to what we saw with pressurized irrigation, where costs originally estimated at $8 million had risen to $48 million by the time the system was approved.
At work session yesterday, I learned that I am not alone in my concerns. But while the council agrees with most of my priorities, the difficulty is in finding the funding.
We debated two options and are torn between the horns of the dilemma.  I’m interested to know how my constituents feel about the choice, so I’ll summarize the two options here. If you have insight for me, please weigh in!
Option 1:  Road bond    
Used appropriately, a municipal bond is a powerful financial tool.  In this case, $20 million borrowed would enable American Fork to jump-start road maintenance at interest rates of 2 percent or better. With inflation rising at a minimum of 3 percent, the consumer price index rising at 7 percent, and oil rising steadily and unpredictably, a bond would be a great bargain.  Setting the bond at $20 million would not solve the entire problem, but would have the added advantage of leaving funds in the budget for ongoing maintenance. (One mistake communities often make is to sink the entire fund into debt service, preventing ongoing work from taking place until the bonds are retired.)
American Fork’s credit rating is the best possible and, even including the PI bonds, the City’s debt load is below half of its debt limit.
If approved by the voters on the November ballot, this bond would raise property taxes by 18 percent. But it would do nothing for other priorities: narcotics detectives, libraries, or parks and trees.
Option 2: Incremental, inflationary property tax adjustments
Utah’s system of Truth in Taxation is a base, rather than a rate system, meaning that the City collects the same, flat amount in property taxes each year. If property values increase, the county decreases the certified tax rate correspondingly; but if property values decrease, the county raises the rate. The result is that, unless the City adopts a program of regular, inflationary adjustments to the property tax rate, the City’s revenue remains flat. Adjusted for inflation, American Fork’s property taxes today have the same buying power they did in 1989, but prices have gone up.
From the time I took office in 2006, I have advocated a discipline of incremental property tax increases to offset this loss, but I have not yet prevailed. Sometimes the City feels it’s too difficult to go through the process of Truth in Taxation, but other times there is bigger game afoot, and the council has favored either a large tax increase or a bond.
Nevertheless, others have been well served by the incremental approach.  Provo has vowed not to borrow money to pay for roads, opting instead to find funding from a variety of sources, including cuts to other budgets and regular property tax increases. Provo’s philosophy, as Mayor Curtis told us when he visited American Fork last winter, is that bonding makes use of one-time money for an ongoing problem. An ongoing stream of money, he said, is the only real solution to road maintenance.
If American Fork were to begin, this year, a course of regular 3 percent property tax increases, families could budget more comfortably than they could on a diet of 20 to 30 percent increases every five or ten years. Over time, the deficiency in the road maintenance fund would be cured, and the financial discipline enabled by this approach could pay big dividends in years to come.
Using this approach, the council could also respond better to other needs such as narcotics detectives, library funding,  and parks and trees. But we would continue, for many years, to take complaints about the slow pace of road maintenance in American Fork.
That’s the state of the debate. Gentle readers, I’m curious to know how you would call it. Given the necessity of better funding, would you support a large bond with an 18 percent tax increase, or a regular diet of small tax increases set against the risk of a punishing inflationary environment?


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