Memorandum

City of Lawrence

Finance Department

TO:	Dave Corliss, City Manager
FROM:	Ed Mullins, Finance Director
Date:	September 26, 2011
RE:	Debt Ratio Projection

Background

Concern has been expressed about the impact of the general obligation debt issuance for the Library expansion on the City of Lawrence’s debt ratios.  The current debt policy and associated guidelines were adopted in 2002.  Since that time, the city has remained within the levels listed in the guidelines.  The guidelines were developed, not as a limit on the amount of debt that can be issued by the city, but rather as a target to meet in order to limit the potential impact on the bond and interest mill levy and to maintain the city’s debt rating.  In 2002, the city’s debt rating by Moody’s was an Aa2.  It has since improved to a Aa1, one notch below Moody’s highest rating.

Description

A projection of the impact of the Library’s debt on the City’s general obligation debt per capita is shown in the attached spreadsheet.  A copy of the guidelines is also attached.  The spreadsheet shows that even with the addition of the Library debt over the next two years, the city should remain below the ratios listed in the guidelines.  The projected general obligation debt per capita at the end of 2013 is $922.22, well below the $1,100 listed in the guidelines.  It is anticipated that the city will be below the other ratios listed in the guidelines as well.

When Moody’s evaluates our debt per capita, they use a different definition.  Moody’s includes bond anticipation notes, but excludes general obligation debt paid by enterprise funds.  Using this definition, it is projected that the city’s net obligation debt per capita will be $880.73 at the end of 2013.

The ratio projection was based upon a debt issuance of $18.0 million for the Library and an additional $5.0 million per year for other projects.  The Library project is anticipated to be bonded in 2013. 

Conclusion

A table showing state and city median debt ratios is attached.  The $1,100 debt per capita ratio adopted in 2002 is below the 2011 city median of $1,218 for Aa1 rated cities but slightly above the $1,088 for Aa2 rated cities.  The $1,100 ratio also would place Lawrence as the 22^nd ranked state when ranked highest to lowest.  It is not recommended that the city consider an increase in the per capita ratio at this time.