Huntsville is in growth mode. It’s a celebratory position to be in having navigated a brutal recession and successfully implemented a plan to diversify and generate new business.
The horizon is bright. More projects and opportunities are flowing into City Hall and that requires a new set of strategies to determine where to best invest taxpayer dollars.
As the City’s economy expands, it is going to need capital assistance, and that means going to the market and borrowing money.
Every borrow is carefully budgeted and planned”
Fortunately for Mayor Tommy Battle’s team, an emphasis on constructive frugality has yielded 10-years of triple-A credit ratings from Standard and Poor’s and Moody’s Investor Services. These are the highest scores a city can receive from Wall Street, with less than one percent of municipalities in the nation earning the top endorsement.
With high marks in hand, Huntsville is headed to the market on Feb. 21 to sell a series of general obligation warrants valued at about $131 million. The monies will be used to fund a series of public improvement projects in the capital plans and to help finance incentives for the Toyota-Mazda project.
“Every borrow is carefully budgeted and planned,” said Peggy Sargent, Finance Director. “We are always looking at the budget, to look at future years when the payments occur to make sure we are able to sustain those payments.”
Sargent believes the City is in excellent financial shape for the upcoming debt sale. The City will receive the most favorable low interest rates, and the triple-A scores are highly attractive to investors who are willing will pay more for Huntsville’s debt.
“Because it’s Huntsville, people are willing to buy our debt at a premium. That means we won’t need to borrow all of the money we need because that premium makes up the difference between what we sell and what we’ve budgeted for specific projects,” said Sargent.
Managing good debt
Huntsville uses its debt to pay for long-term projects that benefit the city for years to come. These are amenities budgeted in 10-year capital plans such as the new Aquatics Center, John Hunt Park renovations, greenways, bike trails and roads.
In contrast, sales and use taxes collected by the City are generally directed toward short-term needs in the general budget and used for annual operational expenses such as garbage collection, public safety, general maintenance and salaries.
To pay back debt, one of the City’s primary revenue sources is property taxes. Other funding tools might include Tax Increment Financing (TIF), which will be used to pay the debt for the Toyota-Mazda project, and the lodging tax, a portion of which will be directed toward the cost of constructing a new music hall for the VBC.
For Sargent, it’s a matter of determining when to borrow, when to pay cash, and the appropriate revenue streams to repay debt.
“Do we need to shift from debt to cash on the funding source, or do we lengthen the life-cycle of the 10-year capital plan,” said Sargent. “Maybe projects that are budgeted in the next 1- 2 years get pushed to year three, four or five of the capital plan.”
By using this fiscally flexible strategy, the City may restructure plans and reevaluate priorities as economic development projects materialize.
Sargent explains, “we’ve built our borrows into the 10-year capital plans and established a two-year cycle going to market. The Toyota-Mazda project shifted our schedule, so we do try to be fluid to be able to respond to economic development demand and opportunity.”
At the end of the day, taxpayers need to have confidence in their municipal government that expenses are not out of line.
“We work to be totally transparent to the public, publish our balanced budget and consistently try to maintain our expense within those boundaries,” said Sargent.
$131 Million Warrant Sale
$69 million for Toyota-Mazda land acquisition, Norfolk Southern railway spur, Greenbrier Parkway acceleration
$10 million for parks, greenways, and recreation
$7 million for Von Braun Center
$22.5 million for roads
$13.5 million for libraries, community centers, and public safety
$8 million for parking garages