FY 18 Annual Report

Debt Service

2018

CITY OF SPENCER, IOWA

Departmental Highlights

Budget Review The Debt Service department accounts for all revenue and expenditures related to the payment of the city's long term debt. The department has one fund fro debt service that is related to all General Obligation Debt of the city. All of the city's debt is classified into two categories: 1) General Obligation or 2) Revenue debt. General Obligation debt is backed by the credit and taxing power of the city rather than the revenue from an enterprise operation. General obligation debt is issued with the belief that a municipality will be able to repay its debt obligation through taxation (Investopedia.com). In Iowa, the city is limited in the amount of General Obligation debt that it can issue. The state constitution limits GO debt to 5% of the city's 100% property valuation. The State Supreme Court has also ruled that tax rebate obligations made under a development agreement also constitute General Obligation debt for the purposes of the 5% limitation. Since property tax rebates are only a refund of what has actually been paid by the developer, the City has inserted a clause in tot eh development agreements that these payments are considered an annual appropriation, therefore only counting the anticipated debt for the year as part of the 5% limitation. This affects all development agreement entered into after January 1, 2015. Revenue bonds are municipal bonds that finance income-producing projects and are secured by a specified revenue sources. Typically revenue bonds can be issued by any government agency or fund that is managed in the manner of a business, such as entitles having both operating revenues and expenses (Investopedia.com). Since these bonds are issued based on revenue generating potential of the operation, they tend to carry a higher interest rebate than General Obligation bonds. In the past, the City has issued bonds that could be considered as a revenue bond as a GO bond and utilized operational revenues to abate the property tax component. Bonds that are sold in connection to sanitary sewer, solid waste or landfill projects would be considered revenue bonds. In FY 18, the City had utilized only 15.46% of its total General Obligation debt capacity, including any outstanding rebate payments and annual appropriation amounts. The City issued $3,382,783 is additional debt in FY 18. This debt will be used for several projects including the Pederson Park lighting, 4th Ave W, Phase II and the WTP improvements. As of June 30, 2018 the City had $16,073,602.10 in outstanding debt obligations. Total expenditures for debt service were $2,478,849*.47 for FY 18 an increase of $639,352.97 (+34.76%) over FY 17. A primary reason for the large spike in expenditures was the transfer of bond proceeds from the debt service fund. Taking the transfer of money out of the equation, total expenditures for debt service actually decreased $784,647.03 compared to FY 17. This was due to the City paying off large amounts of debt in FY 17 early and reflects the City's ongoing aggressive approach of paying debt as quickly as possible. Fiscal Year 18 saw the retirement of three debt obligations of the City. These include the 2010 GO. Landfill Refunding, 2010 GO. Green Industrial Street Paving and the 2012 GO. West Beltway/Fire State Refunding issuances. The City issued just over $2.6 million in new general obligation debt. These funds will be used to pay for the 4th Avenue, Phase I and Phase II sewer-storm sewer separation projects as well as the Pederson Park Lighting Project. Even with these new debt issuances, the City will maintain its current debt service levy. All new debt issuances are calculated to fit into the current debt levy structure. The City also issued $3.9 million in new sewer revenue debt to pay for the recent improvements at the wastewater treatment plant. These bonds will be repaid utilizing the current CSI charge that appears monthly on the utility bills. Overall the city spent 100.4% of its budgeted amount of debt service in FY 18.

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