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player ready...Naperville’s bottom line is under intense scrutiny as the city’s portfolio dwindles and its debt continues on an upward trajectory.
The municipality’s investments and cash reserves, totaling about $180 million in 2002, now sit at less than $80 million after being tapped to pay city expenses when funding waned during the economic downturn. Outstanding borrowed balances, meanwhile, have risen from a low of around $90 million in 2007 to approximately $162 million today, city records show.
“We have a structural imbalance in our budget that needs to be addressed,” City Manager Doug Krieger said in a budget workshop this week when questioned by City Council members. “I believe that we can cobble together dollars for the coming year, but certainly the course we’re on right now is not a successful long-term strategy.”
They are particularly concerned about the city’s long-standing top bond rating from both Moody’s Investors Services and Standard & Poor’s Ratings Services, which positions the municipality for the most desirable interest rates when new borrowing is needed.
That need may arise soon. Two major projects loom ahead that easily could take the city outside its borrowing policies, which require at least 20 percent of principal and interest to be paid down within five years of the new debt issuance. The policy also dictates that 50 percent or more must be paid off by the time 10 years have gone by.
The long-discussed reconstruction of the Chicago Avenue parking deck, east of Washington Street, is expected to cost about $30.5 million, according to transportation team leader Jennifer Louden. The project is planned for 2017.
“As the project moves forward and we determine specific design elements and amenities the costs may increase,” Louden said in an email.
Adding to officials’ woes are U.S. Environmental Protection Agency regulations that could add up to another huge expense. The city-owned wastewater utility has a five-year discharge permit that expires in April 2016, and the federal agency might impose stricter limits on the nutrients that can be released into the local watershed as a condition of renewal. That would call for replacing the discharge system.
“The price tag for that could be as little as $10 million and as much as $80 million,” utility director Jim Holzapfel said. “We just don’t know. It all depends how stringent that new limit is and what that brings.”
Krieger said the new equipment most likely would not have to be purchased immediately.
“Obviously we would work diligently to have the EPA provide us with as much time as possible. Eventually those upgrades are going to need to be made, whether it’s made this next round or (we are given) another permit cycle,” Krieger said.
According to Rachel Mayer, the city’s finance director, the borrowing required for either the reconstructed parking garage or the discharge system would increase the city’s yearly outlay for debt service, now at $12 million to $13 million, by $2 million to $3 million.
Even in the absence of big-ticket spending obligations, officials agree the city’s fiscal health needs work. Councilman Tom Miers said he was troubled by recently discussed plans for borrowing more than $16 million to cover next year’s capital projects.
“You’re borrowing today, based on today’s needs, but if we get hit with one of these large infrastructure needs in the wastewater treatment plant, what would that do to us, and how do we plan for that?” said Miers, a banker. “It seems like a big risk for us.”
Much of the reduced revenue stream can be traced to a significant slowdown in construction as the city approaches full build-out. Developers’ fees aren’t flowing in at the same pace they did during the growth boom that predominated through the 1990s and the first part of the new century.
Property tax income, which waned as home values plummeted, is down as well – partly due to the city opting to keep rates lower as many homeowners struggled financially, tapping cash reserves to fill the gaps. While the city’s debt is on par with comparable communities in the region, Krieger said the impact the lower tax income has had on the city’s cash balances could catch the eye of bond ratings agencies, who see that as one primary measure of sound fiscal condition.
“Over the last couple of years, the one area where we have been less conservative has really been on the reserve levels,” Krieger said. “There was a conscious decision made to provide property tax relief, and we have done that. However, those days are kind of gone.”
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