SECONDARY PROPERTY TAX FUNDED DEBT

Transcription

1 SECONDARY PROPERTY TAX FUNDED DEBT Secondary property tax revenue is restricted solely to paying General Obligation (G.O.) debt service. There are three components that need to be measured before additional G.O. bonds can be issued. First, sufficient voter authorization is needed for each project category in which bonds will be issued. Second, G.O. bond issuance must be in compliance with the Arizona Constitutional debt limitation for the 6% and 20% categories. Last, city policy states that the G.O. debt service fund balance will be at least 10% of the next fiscal year's property tax supported debt service. This policy applies to each of the first five years of the G.O. funded capital plan. Voter Authorization Under Arizona State law, cities can obtain long-term financing through the use of G.O. bonds only with the approval of voters. On November 2, 1999, the City Council placed on the ballot a variety of proposed capital improvements recommended by the Citizen Bond Election Committee resulting in voters approving $411.5 million of bonds requested. In 2006, City Council established an Ad-Hoc Citizens Bond Election Committee to consider whether additional authorization was needed to support the Council approved FY CIP. On May 15, 2007, voters approved $218 million of the $270 million bond request recommended by the 2006 Ad-Hoc Citizen Bond Election Committee. Debt Table 1 Projected Remaining G.O. Bond Voter Authorization (All Dollars in Thousands) Category FY FY FY FY FY FY Public Safety $104,473 $104,473 $104,473 $104,473 $104,473 $104,473 Landfill $15,540 $6,690 $0 $0 $0 $0 Library $17,096 $17,096 $17,096 $17,096 $17,096 $17,096 Streets/Parking 2,3 $67,238 $67,238 $39,238 $39,238 $39,238 $39,238 Cultural/Historical 2 $13,721 $13,721 $13,721 $13,721 $13,721 $13,721 Transit 2 $6,750 $6,750 $6,750 $6,750 $6,750 $6,750 Econ. Development $32,627 $32,627 $32,627 $32,627 $32,627 $32,627 Govt. Facilities 2 $30,200 $30,200 $30,200 $30,200 $30,200 $30,200 Open Space/Trails $50,525 $50,525 $50,525 $50,525 $50,525 $50,525 Parks $14,637 $14,637 $14,637 $14,637 $14,637 $14,637 Flood Control $10,522 $10,522 $10,522 $10,522 $10,522 $10,522 1 Remaining authorization as of June 30, Bonds can be issued as G. O. Bonds, Revenue Bonds or both. 3 Streets/Parking voter authorization can be used for Street Revenue Bonds that are repaid with HURF revenue 402

2 The time between a bond election depends on how much the voters approve in a given election and how many capital projects are initiated. Bond sale proceeds must be used for the purposes specified in the bond authorization election. Remaining bond funds in one bond category may not be used to fund projects in another bond category. Debt Table 1 shows the projected remaining voter authorization for G.O. bonds by authorization category through FY. The remaining authorization numbers reflect unused authorization from the October 1981, March 1987, November 1999 and May 2007 bond elections. Voter Authorization is sufficient for the first five years of the CIP plan. However, according to the current CIP plan, a bond election will be needed before bonds are sold to complete the list of projects in the last five years of the plan for the Parks and Flood Control G.O. funds. General Obligation Debt Limitations and Assessed Valuation Arizona s State Constitution limits G.O. bonded indebtedness to 6% or 20% of the city's total secondary assessed valuation. With this approach, a municipality s capacity to issue additional G.O. debt will grow as assessed valuation increases and as outstanding G.O. bonds are retired. If secondary assessed valuation declines, which the city has experienced beginning with FY 2010 and continuing through FY, then the city s G.O. debt limitations will decrease. The debt limitation commonly called bond capacity and debt capacity figures do not represent the amount of G.O. debt that could be supported by the city s current and projected secondary property tax revenue. G.O. projects in the 20% category are Water, sewer, storm sewers (flood control facilities) and artificial light when controlled by the municipality; Open space preserves, parks, playgrounds and recreational facilities; Public safety, law enforcement, fire and emergency services facilities; and Streets and transportation facilities. G.O. projects in the 6% category are Economic development, Historic preservation and cultural facilities, General government facilities, and Libraries. Previously, the 6% constitutional limitation applied to public safety, streets and transportation facilities, but Arizona voters changed this in the November 2006 election with the passage of Proposition 104. Debt Table 2 reflects the city s G.O. bond debt limitation as of July 2, Debt outstanding prior to the passage of Proposition 104 for public safety, streets/parking and transportation facilities is reflected in the 6% category and in the 20% category thereafter. 403

3 Debt Table 2 Constitutional Debt Limitation (All Dollars in Thousands) General Municipal Purpose Bonds Water, Sewer, Flood Control, Light, Parks and Open Space 6% Limitation 1 $63,054 20% Limitation 1,2 $210,179 Less Direct Bonded Debt to be Outstanding $8,194 Less Direct Bonded Debt to be Outstanding $160,451 Unused 6% Borrowing Capacity $54,860 Unused 20% Borrowing Capacity $49,728 1 Based on FY secondary assessed value of $1,050,893,890 2 Public safety, streets/parking and transportation facilities debt prior to Prop. 104 is included in the 6% category For FY, the city of Glendale has available capacity of approximately $55 million and $50 million in the 6% and 20% categories respectively. As recently as FY 2009, the city s debt capacity in the 6% category was $92.4 million and $270.1 million for the 20% category. This point illustrates the substantial impact of assessed valuation declines on the city s debt capacity Debt Table 3 below shows that with no planned bond sales in the first five years of the plan, capacity in both categories is expected to rise. Capacity is expected to increase as outstanding principal payments are made and as property values increase. Starting in FY the city will have no outstanding debt in the 6% category. Debt Table 3 Projected G.O. Debt Capacity (All Dollar in Thousands) Projected 1 Projected Limitation 2 Outstanding Debt 2 Fiscal Secondary Remaining 1 (A) (B) Year Assessed Capacity (A-B) Value 6% 20% 6% 20% 6% 20% $1,050,894 $63,054 $210,179 $8,194 $160,451 $54,859 $49,728 $1,151,638 $69,098 $230,328 $2,880 $149,425 $66,218 $80,903 $1,151,184 $69,071 $230,237 $0 $132,235 $69,071 $98,002 $1,185,720 $71,143 $237,144 $0 $113,760 $71,143 $123,384 $1,221,291 $73,277 $244,258 $0 $94,570 $73,277 $149,688 1 FY figure reflects actual secondary assessed valuation. 2 Outstanding debt refers to the debt on the principal balance only. 404

4 The biggest proponent to the steep decline in debt capacity between FY 2009 through FY were the changes in assessed valuations over the same period. After more than doubling since FY 2004, secondary assessed valuations reached its peak in FY 2009 (2006 real estate market) at just under $2.2 billion. At that time, secondary assessed valuations were comprised of 66.8% residential, 29.0% commercial and 4.2% other valuations. Since then the city has experienced five consecutive years of secondary assessed valuation declines as follows: 2.9% decline in FY 2010, 17.7% decline in FY 2011, 25.1% decline in FY 2012, 12.5% decline in FY 2013, and 8.6% decline in FY. The FY valuation figure of $1.05 billion is the final planning figure from the Maricopa County Assessor s Office and can be expected to change only slightly during the appeals process. FY valuation reflects 58.6% attributable to residential property, 40.9% is attributable to commercial property and the remaining 0.5% includes, but is not limited to vacant land, agriculture, railroad and historical property. Between FY 2009 and FY, Glendale s total secondary assessed value declined 52.1% and is less than the secondary assessed value in FY The chart below provides a graphical view of Glendale s secondary assessed valuation changes between FY 2004 and FY as well as the projected valuations for FY through FY

5 The projected FY valuation is based on the preliminary valuation notices that the county assessor s office mailed to property owners in February 2013 which correspond with an uptick in the house market in For the first time in six years, secondary assessed valuation is expected to grow and reach the FY 2013 level of $1.15 billion. This increase is due to an improving housing market during 2013 and offset by a decline in commercial assessed valuations that typically lag residential trends by a year. FY assessed value is expected to dip slightly due to the passage of Prop. 117 that require jurisdictions to calculate both the primary levy and secondary levy using the limited property value (currently the primary assessed valuation). Since the city of Glendale s limited property value is slightly less than the full cash value that the secondary property tax levy is currently based on, a slight decline in assessed value is expected. Proposition 117 also limits the growth of limited property values to 5% annually. This is a significant change from the current law that does not limit the level of growth in full cash value. For this reason assessed value growth for FY s, and beyond is projected at 3% annually. Glendale s G.O. Debt Policy and Secondary Property Tax Rate Implications The FY capital budget provides for a path to improved financial stability for the general obligation (G.O.) bond program that included a secondary property tax rate increase of $ in FY 2013, followed by an increase of $ for FY. This increase follows a period of 18 consecutive years where the total property rate tax was either held flat or reduced since FY During the spring 2012 budget workshop discussions, Council approved a two-step secondary property tax rate increase of $ in each of the next two fiscal years. The first step was implemented in FY During the 2013 budget workshops, the City Manager s Recommended FY -23 Capital Improvement plan recommended an increase of $ instead of the $ increase that was originally planned. Council implemented the $ with the adoption of the FY budget. The higher secondary rate is expected to be in effect through FY based on the most current information available about future assessed valuation for property within Glendale s corporate limits. The higher rate is required simply to pay for existing debt service for the G.O. bond program. For the future, the secondary property tax rate will continue to be reviewed annually with Council to ensure a five year balanced capital plan. This rate change means the city s secondary rate will increase from $1.6753/$100 of assessed valuation in FY 2013 to $ in FY ; the city s primary property tax rate also was increased from $ in FY 2013 to $ in FY. The city s total property tax rate will change from $ to $2.2889/$100 of assessed valuation. Debt Table 4 summarizes annual debt service requirements for existing bonds outstanding. Since there are no new G.O. bond issuances planned through FY, no planned additional debt 406

6 service is shown. You will see that the secondary assessed valuation figures reflect the declines discussed previously. Debt Table 4 also reflects: the Build America Bond (BAB) subsidy related to the G.O. bonds sold in 2010; and the development impact fee Citywide Recreation Facilities Fund (Fund 1480) debt service contributions related to the Foothills Recreation and Aquatic Center that was funded with proceeds from the 2004 G.O. bond sale. The BAB subsidy and development impact fee debt service contributions directly reduce the debt service to be cover by secondary property tax revenue and help address the shortfall between the annual debt service requirements and secondary property tax revenue. The G.O. Debt Service Fund balance will be used to cover the overall shortfall between the total annual resources and the annual debt service. Fiscal Year Debt Table 4 Secondary Assessed Valuation & Tax Rate, Resources and Debt (All Dollars in Thousands with Exception of Tax Rate) Secondary Assessed Valuation Estimated Secondary Property Tax Rate Estimated Secondary Property Tax Rev. 1 Build America Bond Subsidy Fund 1480 DIF Payment Resources Debt Service $1,050,894 $ $18,977 $647 $209 $19,833 $22,735 $1,151,638 $ $20,782 $633 $210 $21,625 $25,773 $1,151,184 $ $20,773 $618 $211 $21,603 $23,644 $1,185,720 $ $21,392 $593 $211 $22,196 $23,585 $1,221,291 $ $22,029 $566 $210 $22,806 $22,964 1 Includes esimated SRP In-Lieu revenue of $150,000 per fiscal year Despite having sufficient voter authorization and debt capacity, Debt Table 5 (on the following page), shows the city of Glendale is restricted from issuing additional G.O. debt through FY given the declining fund balance and the requirement to maintain an ending fund balance that is at least 10% of the next FY s debt service., The current secondary property tax rate of $ is just enough to cover existing debt and maintain a five-year balance capital plan. In order to issue additional bonds in the future, the city will need to either: experience better than projected positive changes in assessed valuation, pay off existing debt, raise property taxes further or a combination thereof. 407

7 Fiscal Year Beginning Fund Balance (A) Annual Resources 1 (B) DIF Payment (C) Debt Service 2 (D) Ending Fund Balance (A+B+C-D) Ending Fund Balance Less DIF Payment (A+B-D) Fund Balance to Next Year Debt Service 13,014 19, ,735 10,113 9,903 38% 10,113 21, ,773 5,965 5,755 24% 5,965 21, ,644 3,924 3,713 16% 3,924 21, ,585 2,535 2,324 10% 2,535 22, ,964 2,377 2,167 11% FY 2019 Debt Service: $20,603,419 1 Includes secondary property tax, SRP In-Lieu and Build America Bond Subsidy 2 Includes principal, interest, fees and arbitrage Debt Table 5 Secondary Property Tax Debt Obligations (All Dollars in Thousands) The following tables provide detailed information including issuance amount, issuance date, interest rates, credit ratings and description of uses for each secondary property tax funded debt obligation in which city currently pays debt service. The Water/Sewer portion of the 2003 General Obligation issuance is not included here since the debt service is not covered by secondary property tax revenue. For a summary of all debt service obligations please see Schedule 7: Long Term Debt Service. 408

8 General Obligation Bonds, Series 2003 (1 of 2) $66,400,000 (Original Issuance) Issued April 1, 2003 with Semi-Annual Payments from January 1, 2003 to July 1, Accrues at Rates Between 1.500% & 5.000% variety of projects relating to government facility, maintenance facilities, public safety, streets/parking, flood control, open space/trails, and parks and recreation. $3,875,000 is related to Water and Sewer Fund (Refer to General Obligation Bonds, Series 2003, Water and Sewer (2 of 2). In November 2010, the General Obligation Refunding Bonds Series 2010 was issued for the purpose of refunding a portion of the - maturities of the City of Glendale G.O. Bonds Series ,190, ,335,000 52,525,000 19,137,948 19,571,448 67,327,948 4,421,700 72,096,448 General Obligation Bonds, Series 2004 $36,645,000 Issued July 1, 2004 with Semi-Annual Payments from January 1, 2005 to July 1, 2019 Accrues at Rates Between 3.000% & 5.000% variety of projects relating to government facility, maintenance facilities, public safety, streets/parking, flood control, open space/trails, parks and recreation ,480,000 2,550,000 2,665,000 2,795,000 2,915,000 3,050,000 3,190,000 36,645,000 10,774, , , , , , ,550 13,665,695 30,254,294 3,328,894 3,335,519 3,355,588 3,356,800 3,346,050 3,333,550 50,310,

9 General Obligation Bonds, Series 2005 $11,960,000 Issued July 1, 2005 with Semi-Annual Payments from January 1, 2006 to July 1, Accrues at Rates Between 3.500% & 4.000% variety of projects relating to cultural/historic projects, economic development and public safety. 9,220,000 1,345,000 1,395,000 11,960,000 2,476, ,919 55,800 2,640,512 11,696,793 1,452,919 1,450,800 14,600,512 General Obligation Bonds, Series 2006A $29,365,000 Issued July 1, 2006 with Semi-Annual Payments from January 1, 2007 to July 1, 2021 Accrues at Rates Between 4.000% & 5.000% variety of projects relating to streets/parking, parks, public safety and flood control ,455,000 1,925,000 2,000,000 2,080,000 2,170,000 2,260,000 7,475,000 29,365,000 7,898, , , , , , ,581 11,711,231 19,353,756 2,733,282 2,712,031 2,712,031 2,698,031 2,698,519 8,168,581 41,076,

10 General Obligation Bonds, Series 2006B $9,065,000 Issued July 1, 2006 with Semi-Annual Payments from January 1, 2007 to July 1, Accrues at a Rate of 5.000% The bond proceeds were used to advance refund the maturities of the City of Glendale General Obligation Bonds Series June ,150,000 1,905,000 2,010,000 9,065,000 2,998, , ,500 3,295,033 8,148,783 2,100,750 2,110,500 12,360,033 General Obligation Bonds, Series 2007 $61,000,000 Issued June 26, 2007 with Semi-Annual Payments from January 1, 2008 to July 1, 2022 Accrues at Rates Between 4.000% & 5.000% variety of projects relating to streets/parking, public safety, flood control and government facilities ,040,000 3,805,000 3,960,000 4,120,000 4,290,000 4,485,000 20,300,000 61,000,000 14,251,064 1,885,438 1,723,725 1,555,425 1,380,325 1,187,275 2,440,800 24,424,052 34,291,064 5,690,438 5,683,725 5,675,425 5,670,325 5,672,275 22,740,800 85,424,

11 General Obligation Bonds, Series 2009B (Taxable Direct-Pay Build America Bond) $41,650,000 Issued December 8, 2009 with Semi-Annual Payments from July 1, 2010 to July 1, 2030 Accrues at Rates Between 1.500% & 5.600% variety of projects relating to economic development, government facilities, public safety, flood control, and parks & recreation ,845,000 1,315,000 1,335,000 1,880,000 1,920,000 1,970,000 29,385,000 41,650,000 6,734,332 1,849,202 1,809,753 1,766,365 1,694,925 1,618,125 11,071,063 26,543,765 10,579,332 3,164,202 3,144,753 3,646,365 3,614,925 3,588,125 40,456,063 68,193,765 General Obligation Refunding Bonds, Series 2010 $38,300,000 Issued November 30, 2010 with Semi-Annual Payments from July 1, 2011 to July 1, 2022 Accrues at Rates Between 2.000% & 5.000% "Aa1" Moody Rating "AA" Standard & Poor's Rating The bond proceeds were used to advance refund the maturities of the City of Glendale General Obligation Refunding Bonds Series 2002 and the - maturities of General Obligation Bonds Series The proceeds were also used to pay for the issuance costs of the refunding project ,475,000 5,645,000 6,500,000 6,750,000 2,100,000 14,830,000 38,300,000 4,312,599 1,667,600 1,568,600 1,342,800 1,082, ,800 1,630,700 12,417,899 4,312,599 4,142,600 7,213,600 7,842,800 7,832,800 2,912,800 16,460,700 50,717,