Clarksville 2015 Budget Analysis: Debt

Monday, May 19th, 2014 @ 7:28PM

On May 9, 2014, I submitted the first of what will be several reports on the City of Clarksville 2015 Budget for your information. This is the second report in the series.

A component of any city budget is debt. Debt normally provides the funding for capital projects such as new buildings, land acquisition, infrastructure and expensive, long-life equipment (ex. Fire trucks). Capital projects usually have to meet a specific dollar value and have a minimum useful life expectancy. Debt, when managed correctly, is a useful and necessary tool in most organizations. Properly managed debt enables stable property and sales tax rates. It should not be used for personnel salaries, recurring costs, or consumable materials.

City debt is quite different than personal or business debt and requires a different perspective. As an example, a wealthy developer has a certain perspective when he/she incurs debt as simply a “cost of doing business.” It’s only affecting his/her own wealth. However, city debt requires a different perspective because it affects the entire population of a city. City debt requires an environment of straightforward openness for all of the citizens.

Instead of an environment of straightforward openness, the current Mayor’s administration has used the “bait and switch” maneuver when handling debt. The City Council has been told that borrowed money will be spent on a particular project and then later, an excuse is made to spend it on something else. A very recent and important example of this “bait and switch” concerns the construction of Fire Station 11 (Exit 1 area), which The Leaf-Chronicle recently addressed. I do not agree with debt being used this way.

Often, we talk of debt as associated with “city general” fund. The term “city general” relates to those functions or departments for which the city budgets money to operate for the benefit of its citizens, such as: police, fire, street and parks. However, there are other city entities that accumulate debt, but do not pay that debt through the use of taxpayer money, or the “city general” fund. These entities use ratepayer money to pay for their operational and debt needs. The Clarksville Gas and Water Department (CG&W) and the Clarksville Department of Electricity (CDE) are the two primary examples. These entities do not receive city taxpayer money for operational purposes; thus, their financial endeavors are separate from the city’s general fund operations for accounting purposes.

You should understand, however, if you are a city taxpayer, you are very likely a ratepayer to CG&W and CDE. This means you pay for their debt costs through the utility rates you pay. These utilities WILL raise the rate you pay to cover their operational and debt expenses if their debt isn’t managed properly and kept under control.

At the budget workshop meeting on May 12, the Finance Director stated the city principal debt burden was $117,614,305 going into the Fiscal Year 2015 budget. The Mayor, in her proposed Fiscal Year 2015 budget, is requesting approximately $10,000,000 in additional debt. CG&W has $234,167,639 in debt and CDE debt is $80,782,508; the debt total for these city entities is approaching ½ billion dollars.

In addition to those I’ve already mentioned, there are other entities associated with the city that also carry debt for which the City and /or rate payers can ultimately be responsible, such as the Natural Gas Acquisition Corp and the Clarksville Parking Authority.

Based on information provided, at my request, by the city Finance Department, our current debt load payments extend from 2014 to 2038. The debt and interest payment totals for all of the debt activities associated with the city in some fashion through those years (it can and does change due to new debt, refinancing of debt, or possibly early payoff) is approximately $800,000,000. About 26% of that amount is interest.

Under a Summers’ administration, budgets and associated debt will be constructed while looking at the upcoming years AND based upon the needs and impact of spending decisions in the following years. If more spending caution is needed in the initial phases of a city budget, then that will be accomplished. If economic conditions are better than anticipated, then we can look to address additional needs.

As I have done on the past seven budgets, I will analyze each section and provide you, the taxpayer, with facts on items in the budget and those missing from the budget. Please encourage other people to follow these budgetary updates by asking them to like my Facebook Page. Of course, your input is welcome at any time.

As I stated in my announcement for the office of Mayor, the citizens of Clarksville desire and deserve a long-term financial strategic plan for Clarksville. Presently, it seems as if concerns raised over current budgetary decisions, and their impact on future years, are often brushed aside as irrelevant or impeding the process. These concerns and questions should be welcomed as additional input for solid financial management.

Thanks,

Bill

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