By Harry Gatjens
The Edmonds City Council is scheduled to make a decision about bond refinancing at its meeting next Tuesday, Feb. 8. As this is normally a Council Committee meeting night, the main council meeting and the decision on the bonds will start at 6 p.m., with committee meetings following at 7 p.m.
At issue is whether to just refinance the bonds and take advantage of a lower interest rate, or to also pay some of the bonds off entirely with the reserves from the sales of the Fire Department assets.
In my last article about this issue (link here), I tried to explain the various options. Unfortunately, I gave some incorrect information about the possible use of free- up funds if the City Hall bonds were paid off.
New City of Edmonds Parks Director Carrie Hite made a presentation at the Jan. 25 council meeting that gave more clarity to how Real Estate Excise Tax (REET), which is one-half of 1 percent of the sales price of a house when it is sold. In my earlier analysis I stated that if the bonds were paid off, the first $750,000 of REET funds was set aside for parks. This was incorrect, as while that is the case for REET 2 funds (city fund 125), but the bonds are paid out of REET 1 funds (city fund 126).
REET 1 funds can be used for the acquisition of parks and REET 2 funds cannot be used for acquisition of parks. The City, however does not require that any of the REET 1 fund be used solely for parks acquisition, although they can be used for that purpose.
My error was in stating that the first $750,000 was directed to parks. I had confused REET 1 and REET 2. However, Council member Lora Petso has suggested that the council change their provisions so that some portion of REET 1 funds would be dedicated to parks. This will be part of the council discussions on February 8.
We would like your opinions on what should be done about the bonds. We have posted a survey aimed at gauging citizens priorities when it comes to the refinancing of these bonds. Please answer our survey so that your voice can be heard.
Somebody correct me if I’m wrong, but here are the facts that I can glean from all this complexity:
(1) If the city continues on its current path, it will run out of money in 2 years.
(2) There is no agreed plan for fixing this.
(3) It is proposed that we use up reserves now to pay off debt.
Councilmember Peterson compared this to paying off a mortgage when you aren’t sure if you’re going to have a job next year. He understated the situation. It’s like depleting savings to pay off the mortgage while assuming you are going to get a better paying job next year.
One reason to pay off debt is that it creates a greater sense of urgency to find new revenue. With a levy vote looming in the future, could this be the reason some of the Council wants to do this?
I thought this discussion about paying off bonds started from an action to refinance bonds to lower the interest rate. If the bonds were refinance instead of paid off, wouldn’t the annual savings of $377,000 annually, as identified in the poll, be a lesser amount of savings? Does anyone know the amount of savings we might get by refinancing the bonds instead of paying them off?
It was stated during the presentation that if the bonds were just refinanced the savings would be $52,000 annually. This depends, of course, on what the interest rates are when the actual transaction takes place.
With the current rates so low, the sooner the better.
Joe Morgan’s summary, though clearly slanted, brings up good points.
– We have “reserves”, as required. This money is in addition to those required reserves, so let’s not mix up the lingo. This are surplus to the reserves.
– Paying off high interest bonds reduces our annual expenditures for the long term. So, while it does reduce our cash at the front end to pay off debt, it eliminates interest payments on debt forever. That is a good way to work towards long-term solvency, as there are few around here who propose that tax revenues are going to reach levels to return our City’s income to pre 2008 levels + inflation. Why have a budget that requires it? So, paying down debts is always a good move.
– Keeping this cash in hand is also a good move. Gives us more financial flexibility, as some have said. This enables us to cover our obvious tax shortfalls for a bit while we figure out how to deal with it.
– The “third way” is to refinance high interest debt ASAP, to reduce expenses while retaining our cash. I think this gives us max “flexibility”, while also helping close the gap between income and expenses. Perhaps we could even pay down a bit of the debt in the refinance, retaining much of the cash.
My point with all of this, is to highlight that using the cash to buy our way into additional parks holdings is the path to financial ruin. Uses up the cash, adds to operational costs, further exacerbating our budget woes for the long term, and ignoring the huge expense coming our way in the form of Yost Pool’s replacement or upgrade. Oh, and again, similar to the “Skippers purchase” fiasco, park purchase provides the public with the impression that either the City has plenty of money, or can’t be trusted to live within their means.
I believe we are going to eventually need a levy. In the meantime, finding creative ways to drive down the required amount of that levy, and building public support through sound financial decisions should be our goal. I recommend we refinance the debt, and, as Harry recommended, we’d better hurry before interest rates go up.
Todd,
You and Priyha are so sensible. Why id you folks not throw your hat in the ring for City attorney? Keep the money local, and you two care. Maybe next time?
I see that only 43 people have taken the poll. 24 want to save the 1.3 mil for future needs. That is probably more than the e-mails that Council members will receive. Not scientific but gives some indication of what some people want.
And it did not even take 3 minutes at the mic on a tues.
Excellent comments, that I agree with, from Todd. I would just like to clarify that the reduction in debt is aimed at leaving more money in the REET (real estate excise tax) fund so that more money can be borrowed to buy more property for parks – as Todd said ” the path to financial ruin”. None of the options directly affect the general fund. However, property purchased for parks would be taken off of the tax rolls – that means reduced property taxes going into the general fund.
Todd if property comes available and the council wants to buy it they can and will and there is not much the public can do about it, thats just the way it is, I likes Rodgers idea of getting grants to buy property, that way your not paying the total price. I quite do not understand the argument you guys are having dept is dept and assets are assets. So if you pay off on your dept it doesn’t matter if you have money in the bank cause you can borrow more, There is nothing wrong at all with paying the dept off, your idea is also a good one, but If you can get a grant thats even better. Remember we are talking about a”city ” and they have different rules than you are me. They can not sell the property for a profit, but I think they can trade property . Speaking of parks the haines park turned out great, if you get a chance check it out
In response to Ron Wamblot comment #8.
From both a historical and current prespective – Fund 126 – REET 1 – (original name) Park Acquisition Fund now know as Special Capital/Parks Acquisition was established in 1984 for the primary purpose of purchasing from Edmonds School District 15 the Civic Center Playfield.
The current lease of the 8.1 acre park expires in 2021. It remains the only School District property zoned “Public Use”. The purchase of this important piece of property is stated in City of Edmonds Parks Comprehensive Plan and current and previous Capital Facilities Plans. Home to Edmonds Chamber of Commerce annual Taste of Edmonds and 4th of July Fireworks events, if sold to a developer where would these events be held? Where would the Boys and Girls Club be located? Where would the city move the skate park?
The current proposal saves approximately $52,000 a year interest payment and allows the fund to once again grow from the REET 1 tax. Under the current financial obligations this fund will zero in 2021 when the lease expires.
Ron Wamblot, as a City Councilman, you voted for the current Parks Comprehensive Plan and previous Capital Facilities that included park acquisition of Civic Center Playfield. Now as a private citizen, you are promoting not following the our city planning.
@Hobbs: please say you didn’t just mistake me for an attorney! Thanks for your vote of confidence, though.
@Mike: I don’t agree that the Council can buy property when it wants to – they are charged with being responsive to the citizens, and to the long-term interest of the City, not to their personal agenda. Also, debt is not debt. Current debt is at a high interest rate, so refinancing or paying down will reduce the amount of interest we’re paying. This means we can pay off the debt faster, reducing the drag on our finances for the long term.
@Mr. Tupper: The long term acquisition, or at least re-lease, of the Civic Center playfield should definitely continue to be part of the long range plan. I hadn’t heard that the School District was even considering selling this property to the City, but we should have a plan for this. Or else, if we have no capital in 2021, we’ll need to take on more debt to acquire it as a permanent park.
Todd I think you missunderstood me. Im talking about the dept asset relationship when it comes to borrowing money. If you have money in the bank and dept its the same as having less money and no dept. There are some who think that having money and dept you have more borrowing power not true. Paying a lower interest is good but when I made the comment about dept and assets it was in a borrowing example. I personally like the idea of getting a lower interest rate and if they do not pay the dept off that is exactly what they should do. As far as the council buying property I’m not coming up with that I called the council and asked them, they can do that, I still say the grant idea is the best idea, don’t get me wrong your idea is good , but whoever is in charge of purchacing property needs to look at the grants, now that could be a real good deal
Finis
I certainly do support buying Civic Park when the school district is ready to sell it. They have declined to enter into any discussions with the city at this time. I have no confidence that the intent is to accumulate money in the REET fund, rather the intent is to buy a piece of property in the southend to expand a park.
Mike Mccarthy
You and others talk about seeking grants like it’s a revelation. City staff routinely and agressively pursues grants for projects whenever there’s the slightest possibility that any are available.
Ron Wambolt Maybe the city is looking at grants maybe they are not. I don’t know but from the comments that Rodger is making at the meetings the city missed the opportuiity for some in the past. I know he does his research so there is probably some substance to what he is saying