Scottsdale appears poised to pursue GO bond program

Scottsdale City Hall is at 3939 N. Drinkwater Blvd. in downtown Scottsdale (File photo)

There are 118 Scottsdale infrastructure projects city leaders have identified carrying an estimated cost of $810 million, but elected leaders readily admit municipal needs exceed existing funding sources and mechanisms.

Scottsdale City Council Tuesday, Feb. 20 held a public hearing on the findings of the governing body’s capital improvement subcommittee at City Hall, 3939 N. Drinkwater Blvd.

The Scottsdale Council Capital Improvement Plan Subcommittee is charged with presenting the larger governing body with both a recommendation for a list of priority projects to address infrastructure needs this coming fiscal year and, most importantly, marching orders for the next five years.

Scottsdale City Council members Virginia Korte, Guy Phillips and David Smith serve as liaison between the governing body and the CIP subcommittee, which is also comprised of Scottsdale department leadership.

According to the Feb. 20 discussion, Scottsdale City Council appears poised to pursue a general obligation bond program seeking to pay for $350 to $450 million in infrastructure costs.

“We want to see what all your needs are not just what you think we can fund,” Scottsdale City Treasurer Jeff Nichols said of how city staff derived its list.

Jeff Nichols

Mr. Nichols reports city staff derived General Fund projects totaling $534.1 million attached to general operations of the city, meanwhile there are transportation-specific projects that total $275.9 million.

However, planned renovations at Scottsdale Stadium — projected cost of $42 million — and Desert EDGE considerations — projected cost of $68.4 million — were taken out of the capital improvement plan, according to Mr. Nichols.

In September 2017, Scottsdale City Council voted to allow up to $900,000 from the stadium facilities capital improvement fund to reconstruct portions of Scottsdale Stadium.

City officials say the September 2017 changes approved at Scottsdale Stadium, 7408 E. Osborn Road, is the first step in the ongoing master plan process under way at City Hall.

“When we add those two project lists (General Fund and transportation) up and the funding needed to make those projects happen a total request of $666.5 million dollars, almost $667 million dollars,” he said of the agreed upon figure for the existing capital improvement needs.

Months earlier the CIP subcommittee directed city staff to fund an implementation strategy for a $350 million and $450 million infrastructure improvement plan.

“That is what we are trying to get direction on tonight,” Mr. Nichols said during the public hearing of the subcommittee direction.

According to Mr. Nichols, the city of Scottsdale has a general obligation bonding capacity of $416 million of which $26 million is still outstanding, which is a result of earlier bond programs.

“We have $390 million of capacity, according to state statute,” Mr. Nichols said.

General obligation debt for general municipal purposes is not allowed to exceed 6 percent of the net assessed full cash property valuation of the taxable property of the taxing jurisdiction, according to the Arizona Constitution.

Furthermore, on a general obligation bond program attached to certain provisions — things like public safety or transportation projects — the city of Scottsdale has a capacity of $830 million, according to Mr. Nichols

Cities and towns may also issue general obligation bonds in an amount up to an additional 20 percent of the net assessed full cash property valuation under certain provisions specific to infrastructure or public safety needs, according to the Arizona Constitution.

“The available 20 percent capacity on the general obligation is $830 million, which is well over a billion dollars between the two,” Mr. Nichols said pointing out the city’s excellent lending rating.  “There are other communities that have triple-AAA ratings such as this, but no one has a better rating then 3-AAA communities —- there are none. This is as good as it gets. You can only go down from here and I am hoping that doesn’t change at least not under my watch.”

Most bonds are taken into the open market, have some type of maturity of age spanning decades and are accompanied by interest rates ranging from 3 to 7 percent. When a general obligation bond is levied, homeowners pick up the tab, known within civic hallways as debt-service, oftentimes through a secondary-property tax.

Scottsdale City Council is hosting a March 27 work study discussion on the strategies for funding an infrastructure program that could materialize at the close of fiscal year 2017-18, city officials speculate.

A view of Scottsdale City Council during a recent meeting at City Hall. (File photo)

General interest for general obligation

All but one Scottsdale City Council member, in one way or another, expressed an interest in exploring the possibility of asking voters to approve a general obligation bond program.

Councilman Phillips did not go on the record one way or another if he believed general obligation bonds are a good thing and if they should be pursued by the municipality at this time.

“When you say the general obligation bond tax impact on a $300,000 property would be $166.50 a year there really is no increase, I presume this $166.50 is what they are paying now and they are going to be paying for the next few years, so the $166 would be drifting down from where they are now,” said Councilman Smith during the public hearing pointing out general obligation debt is already being paid by residential property owners.

Mr. Nichols pointed out earlier in the evening a 2000 bond program still being paid leaves residents paying about $177 annually in secondary property tax and if $450 million were to be issued in future years as earlier debt is paid off the new program would likely settle at $166.50, which is just over $10 less on an annual basis.

Jim Lane

“I don’t necessarily want to rehash what the subcommittee has done,” Scottsdale Mayor Jim Lane said.  “I am an advocate of general obligation bonds for a couple of reasons in terms of capital projects. One primary thing is the public gets to vote on a line-item basis.”

Mayor Lane calls a general obligations bond issuance process one that is equitable.

“You could call it sunsetting, I think it is a fairer allocation because we can truly consider who is participating on the secondary property tax,” he said of the bonding mechanism. “I think if we can quantify in the areas where we need the money and if we can define it and present it in a way that is true and honest. Trying re-establish some kind of trust in what we have to do and what we need to do through bonds I think is the best way for us, but we need to quantify it first.”

Scottsdale Vice Mayor Virginia Korte says she is pleased to learn a bond program could be issued with little to no future tax impact on local property owners.

“If it was a property tax bond measure, we would not raise taxes and I think that is a critical point for us to, shall we say point our compasses,” she said.

“When we talk about creating hardship on our community, we are not talking about a hardships even if we go to $450 million. I think one of the critical reasons I favor general obligation bonds is its transparency. I believe unanimous vote from council for a funding mechanism is critical.”

Councilwoman Korte recalled a time when not all members of Scottsdale City Council approved of a general obligation program and openly campaigned against it.

“I am really putting out there the importance of a 7-0 vote,” she said.
Councilwoman Linda Milhaven says she objected to certain tenants of the ongoing bond discussion.

Linda Milhaven

“I have to object to a discussion about whether or not we invest in our infrastructure, or how we invest in our infrastructure should not be an issue of whether or not my colleagues and I are trust worthy,” she said during the public hearing.

“I would like to sort of take that out of the conversation. I think we need to put aside political differences and find where we agree because I think this is in the best interests of our community.”

Councilwoman Milhaven says there are plenty of other political fights to be had — funding infrastructure projects should not be one of them.

“There are enough other issues that we disagree with that will distinguish us from each other politically that we don’t think investing in our infrastructure and the quality of our community needs to be a political issue,” she said. “Do we think we need to invest in our infrastructure? I think, yes.”

The bottom line

Mr. Nichols presented to council scenarios where if a general obligation bond program attached to the secondary property tax of a residential property worth $300,000 those property owners would be paying about $166.50 a year if the bond program where to be voter approved.

“The taxes people pay, would not increase and in fact would decrease over time, the secondary property taxes,” he said noting the 134,000 residential units that would be effected.

“The tax impact we looked at for a $450 million authorization — this is for the whole $450 million on a $300,000 residential property — is $166 per year. What we had shown the CIP subcommittee was they are currently paying $177 a year so as current general obligation bonds run out, we would have a $450 million program over time, the total they would be paying is $166.50 a year or less than they are paying now.”

A bond program attached to the secondary property tax of a residential property is the most steady approach to deriving General Fund payment for bond issuance, Mr. Nichols explained.

“If property values go down the rate goes up, if the property values go up the rates go down. So, it’s a very reliable source of income,” he said of a secondary property tax levy on general obligation bond debt.

Both the ideas of adjusting sales tax rates for a period and pursuing a Municipal Property Corporation program were suggested, but Mr. Nichols pointed out both come with pros and cons.

“The instability of a sales tax, which is when the economy shrinks what we take in shrinks as well,” he said of the volatility of a sales tax measure to cover capital improvement costs.

“We can’t issue MPC debt unless we identify a finding source for it. Well, the funding source would be going to the voters to ask to leverage those taxes over time.”

One idea, however, seemed to get traction with Scottsdale City Council: a potential increase to the local stormwater fee, which Mr. Nichols says, if increased by $2 a month, the city could raise an additional $2 million in General Fund dollars.

Northeast Valley Managing Editor Terrance Thornton can be contacted at tthornton@newszap.com

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