Memorandum
City of Lawrence
Finance Department
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TO: |
Dave Corliss, City Manager
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FROM: |
Ed Mullins, Finance Director
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Date: |
October 26, 2011
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RE: |
Westside Recreation Center
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Background
The following information summarizes the impact of a $15,000,000 debt issuance in 2014 for the construction of a recreation center on the west side of Lawrence. It is anticipated that the city’s share of the county-wide sales tax will be used to retire the debt. The analysis includes the issuance of 15 year debt or 20 year debt. The City of Lawrence typically issues 12 year debt for most infrastructure projects, but issued 20 year debt for other sales tax funded recreation projects in 1996. The debt payment for the 1996 debt issuance averages just under $1.1 million per year with the last payment to occur in 2016.
Description
The 2014 recreation debt issuance provides $15,000,000 for construction and $75,000 in issuance costs. The projection estimates that the average interest rate on will be 2.8% and 4.0% on the 15 and 20 year bonds, respectively. This compares to the 1.9% average rate the city received on its 12 year issuance this year. The annual debt payments are approximately $1,250,000 and $1,100,000 for the 15 and 20 issuances, respectively. The attached spreadsheets (15 year and 20 year) display the annual debt payments.
A projection of the impact of the recreation center’s debt on the City’s general obligation debt per capita is shown in the attached spreadsheet. The debt impact projection includes $5.0 million a year in general obligation debt issuance plus an additional $2.5 million as the city’s share of future development projects in both 2013 and 2014. While the actual amount of additional issuance is not known, it is likely there will be some city participation required for new benefit district projects. The projection includes the $18 million debt issuance for the Library project, plus the $5 million in debt the City annually issues.
A copy of the guidelines is also attached. The spreadsheet shows that even with the addition of the recreation debt in 2014, the city should remain below the ratios listed in the guidelines. The projected general obligation debt per capita at the end of 2014 is $1,030.36, approaching the $1,100 amount listed in the guidelines. It is anticipated that the city will be below the other ratios listed in the guidelines as well.
Conclusion
Ideally, the city would issue the bonds for the project in 2016 with the first principal and interest payment occurring in 2017. This would result in minimal impact to the city’s share of the county-wide sales tax, since the current $1.1 million annual debt payment will cease at that time. This is equivalent to the annual debt payment projected for the 20 year option.
If it is decided to issue the debt sooner than 2016, the impact can be lessened by paying lower principal payments until the 1996 debt issue is retired. This will result in higher payments in future years. However, future sales tax growth will reduce this impact. The City has experienced annual sales tax growth of 2% to 3% historically, and over the life of the debt the projected sales tax growth will provide additional resources for the project debt.