The Ladysmith Common Council voted 7-0, Monday, to approve proceeding with selling $2.24 million in bonds for financing improvements to the city’s public works department building and street improvements. The amount breaks down to $1.29 million for the DPW garage work and $950,000 for street improvements, with all three amounts unanimously passed in separate decisions.
The bonds are scheduled to be repaid over 20 years through 2039 with interest rates starting at 1.9 percent and slowly increasing to 3.15 percent in the final year. Repayment will be through multiple sources including the tax levy and sewer and water utility revenues.
Total principal and interest is estimated at $3.04 million over the life of the repayment. Principal and interest payments start out relatively low between $82,205 and $108,860 during the first five years of the debt repayment before increasing to between $161,718 and $181,138 in the remaining years.
Street work will be funded through the city budget and tax levy. A portion of the DPW garage is also to be funded through the city budget with other portions funded through the water and sewer utilities.
“Those three funding sources will be budgeted from in terms of revenues to pay the debt issue back each year over the 20 year period,” said Sean Lentz of the city’s municipal advising firm, Ehlers & Associates.
The state limits municipal borrowing to 5 percent of equalized value, which in Ladysmith is now about $167 million. Adding this new debt brings the city total debt to $5.1 million outstanding of an $8.35 million state limit, leaving the city with about $3 million of remaining capacity.
“That is about 38 percent of the total state limit still at your disposal should the city need to do general obligation borrowing in the future,” Lentz said.
City officials are layering this debt over existing debt with has of about $390,000 annually and is slated to be paid off in the coming years.
“What we set up is over the next three years adding the new principal and interest payments to the existing we can stay right around that $390,000 a year. Then it steps down over time. The last 11 years is just this proposed issue being outstanding,” Lents said. “The idea is the levy would stay in the same range the next couple of years, and if the city has other types of projects that would require this type of debt issuance in the future, trying to structure those to keep that overall debt level for all of the city’s debt around that $390,000 a year to pay back the principal and interest.”
Lentz called it a good situation to have falling debt payments when undertaking new major projects like a DPW garage and street work.
“The fact that your debt was set up with falling payments prior to going into these projects positions you well to add these projects in without having a major spike up or any spike up in this case with the budgeted debt levy of principal and interest payments,” Lentz said.
About $700,000 of the borrowing is for the recently completed Fritz and Worden avenues projects. The remaining $250,000 is for next year and likely to be used as local match for Barnett and Gustafson roads improvements in the industrial area,” according to City Administrator Al Christianson.
Other street projects with street, sidewalk and stormwater improvements currently being engineered for possible future work and financing include parts of W. Fourth Street S at $169,100, W. Third Street N/S at $407,800, First Street N/S at $226,700,Lake Avenue E at $391,800, E. Second Street N/S at $205,100 and W. Fifth Street N between Lake and Summit avenues at $817,400. The projected $1.66 total cost could be combined into a single 2020 Community Development Block Grant applications with an effort to use Tax Incremental District funds as the local match as much as possible. Special assessments for sidewalk, curb and gutter are also expected to be part of any repayment plan on these roads.
Competitive proposals of the financing are tentatively scheduled to be reviewed by the city council on Dec. 9 with final approval later that month.
“Based on the existing debt of the city and adding this new debt, the debt portion of the city’s levy is not expected to increase because the debt was already set to be lower from last year’s payment. The way we are repaying this new debt issue will keep you at the same level which is about $390,000 in principal and interest to pay the debt back,” Lentz said.
“So we are going to borrow $2.24 million and it is not going to cost the taxpayers anything additional?” Ald.Marty Reynolds said.
“Right. The debt will not go up because of this financing,” Lentz said. “The tax levy for debt will not go up.”
If the new debt is not issued, the debt payment would go down next year, according to Lentz.
“You already had a built in decrease scheduled for 2020 and over time it even falls further because you are paying off old debt,” Lentz said. “By adding the new debt we were able to set up the payment on the new debt to keep the city at the same level over time.”
“The debt payments and the levy will not go up because of the debt,” Lentz said.