Why the $4 Million Bond

Traditionally, the City of Rye has paid for infrastructure improvements out of its fund balance. But with big annual surpluses no longer the norm, the City will be asking voters to support an infrastructure and safety bond in November.

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Published August 24, 2012 5:00 AM
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BondGraphTHUMBTraditionally, the City of Rye has paid for infrastructure improvements out of its fund balance. But with big annual surpluses no longer the norm, the City will be asking voters to support an infrastructure and safety bond in November.

 

By Rye Record Staff

 

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Traditionally, the City of Rye has paid for infrastructure improvements out of its fund balance. But with big annual surpluses no longer the norm, the City will be asking voters to support an infrastructure and safety bond in November.

 

At the August 6 City Council meeting, City Planner Christian Miller explained that the undesignated fund balance, as a source of funding for capital projects, has become “extremely limited.” 

 

Plainly, this is not a sustainable practice, according to Miller. “It ultimately results in deferring costs, often way down the road, making difficult funding decisions even more difficult in the future. It also results in the City essentially managing its infrastructure to the point of failure before it is replaced, often at a greater cost.”

 

Some of the City’s infrastructure is on the brink of failure, according to the City Planner, such as Smith Street and the Smith /Elm Place intersection, the Locust Avenue sewer, and the Boston Post Road retaining wall. In addition, the City recommends safety improvements to the Purchase/Fremd/Purdy intersection, and pedestrian improvements to deteriorated sidewalks, and crosswalks. It urges the installation of safety improvements near schools and the upgrading of crosswalks to ADA compliance. A complete list is available online at ryerecord.com. The total cost would be approximately $3 million.

 

The voters will actually be asked to approve two bonds on November 6. Separate from the infrastructure improvements is the Police/Court building improvements project. The Office of Court Administration (OCA) has indentified needed upgrades to the buildings primarily related to holding prisoners, providing a separate exit for prisoner transportation, and an interior elevator. The cost is estimated to be approximately $1.2 million.

 

Complicating City funding of infrastructure improvements is the 2% tax cap. Based on the City’s budget of approximately $30 million, a 2% property tax increase generates approximately $400,000 in revenue. Because the average capital project is at least $450,000, that makes it difficult to fund even the lower cost items on the City’s Capital Improvement Plan.

 

In order for the $4 million bond to be on the ballot in November, the Council must vote to approve a resolution at its September 5 meeting. The decision may be driven as much by the super low interest rates as the necessity to fix broken infrastructure. As Frederick Dunn, the municipal finance expert on the Finance Committee, explained to the Council: “If we had to put a timing on coming to the market with a bond issue, on a scale of one to ten, this would be a ten. If you have to issue a bond, this couldn’t be a more favorable time.” Dunn quoted ten-year rates that are below 2% and predicted that Rye, having triple “A” credit, would be received “extremely favorably” by the market.

 

On the other hand, as Chairwoman Paula Schaefer of the Finance Committee asserted, low rates are not necessarily reason for borrowing. She pointed out that we are in an environment of escalating mandated pension and health care costs. With the addition of the cost of the bond, “we are going to need an override of the tax cap.”

 

Chairwoman Schaefer urged the Council to develop a five-year plan of expenses and revenues to give the taxpayer a full picture of the consequences of additional debt. Some Councilmembers demurred about the creation of official five-year budget predictions. Councilmember Laura Brett remarked that five-year predictions will be “inherently unreliable” because you don’t know what the future pension costs and health costs will be.

 

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