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:
- Two narcotics detectives
- A $30,000 increase to library collections (half that amount was awarded)
- Ongoing tree planting and pruning funds (deficient by $14,000)
- A full-time economic development director
- 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.
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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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