Betting on the bonds

Tonight’s the night.

Not only will the Town Council approve its budget for fiscal 2011, its members also will vote on issuing $20.4 million in general obligation bonds that include $16 million and change for doubling the size of the town library.

The crucial vote is the decision on whether to issue the library expansion bonds. The council has to approve a town budget – state law says so. But the council does not have to issue those bonds. That’s completely discretionary, and were this a healthy economy in which to borrow that great an amount of money, I’d be all for it.

But times are tough, and you would expect a majority of council members to show some common sense on fiscal matters, even if the town manager is going out of his way to reassure them that the borrowing is no cause for worry. I think borrowing always is a cause for worry, but that’s just me. I’d advise the council to hold off until we see some improvement in the economy. (The town has three more years in which it could issue the bonds; that’s plenty of time to see how the economy shakes out.)

If I were a betting man, though, I’d say the vote will go 5-4 in favor of issuance. In previous discussions of the matter, Mayor Mark Kleinschmidt and council members Penny Rich and Sally Greene have shown no reluctance to borrow that money. They have enthusiastically backed issuing the bonds from Day 1. The lousy economy doesn’t faze them. And they don’t seem to understand out of whose pockets the money will come.

These folks are more concerned with the town’s image than with its fiscal health. And they certainly don’t seem to subscribe to the wisdom of not borrowing money in bad economic times unless there’s an emergency. The library expansion is in no way an emergency.

Council members Matt Czajkowski, Laurin Easthom and Gene Pease have voiced their profound doubts about the timing of the bonds, and I would bet they will vote against the issue, as it would be prudent to do.

That leaves Donna Bell, Jim Ward and Ed Harrison as the swing votes.
Bell has shown great good sense in her time on the council, and she has questioned the need for the bonds to be issued now. She would seem to be in the Let’s Wait on This camp.

Ward usually votes the same as Greene, and while he has railed against the county and its unwillingness to provide more funding for the town library, the fact that a big chunk of the money needed to run the expanded library won’t be there will not affect his decision for the bonds.

That leaves Harrison. My sense is that he will vote for the issue, if only because he sits next to Greene and would not want to have to put up with her sniping if he didn’t go along.

So come Tuesday morning, I predict the town will be headed inexorably toward a greatly expanded library as well as a whole lot more debt to pay back.
–Don Evans

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  1. Frank

     /  June 7, 2010

    “were this a healthy economy in which to borrow that great an amount of money”

    It is. Interest rates are at a record low. You’re suggesting waiting until interest rates rise to borrow money, which is the wrong thing to do.

  2. Runner

     /  June 7, 2010

    As much as I appreciate Mr. Harrison’s comments on this site and his somewhat long winded statements in the town coucil meetings, his voting record puts him squarely on the side of the “spenders” running the Chapel Hill government.

    I expect Mr. Harrison to convey some sort of “deep understanding” of the matter and personal familiarity with all those involved. Yet, his vote will still be like it always is.

  3. Frank, interest rates are low, and timing the market can be tricky, but by all indicators they will continue to be low through next year and, if Chapel Hill maintains its AAA rating, we will be able to secure debt at favorable rates.

    Why wait?

    Next year’s debt load will be less (thus debt payments less), we will have a better understanding of how “temporary” the economic changes we’re experiencing are (will employment ever pickup?) and know how Federal/State/County budget woes will be.

    Running our Town’s credit card to its historical max during this downturn is irresponsible. Borrowing from reserves to pay for that discretionary extravagance worse. Putting our finances in dire jeopardy – making near term tax increases nearly a sure thing – worst.

    Not taking Lot #5 off the table in-spite of its successive contractual failures continues to amaze me. And while Mark’s comments about this morning about the Library funding issue flew in the face of reality, it’s not the strangest bit about this political theater. Rather its the fact that staff has worked hard to save, save, save and some on Council are pushing so hard to spend, spend, spend.

    It’s like they’re addicted to debt.

    I know I’m not looking forward to seeing next year’s fiscal train wreck and political pleas of “we didn’t know!”

    Maybe Ed will come around Runner, I think he can do it…

  4. Ed Harrison

     /  June 7, 2010

    Sitting next to Sally Greene and her supposed “sniping” is highly unlikely to affect my vote, as anyone who is familiar with my long record on Downtown safety issues is aware. Apparently, Don is not.

  5. Runner

     /  June 7, 2010

    Mr. Harrison,

    Today is the day that you let everyone know your record on spending issues. I look forward to watching the vote.

  6. Ed Harrison

     /  June 7, 2010

    I have an 8 1/2 year record in Chapel Hill on spending issues, and longer elsewhere. Sometimes I vote to spend money, and sometimes I don’t. There are a lot of times when I’ve been the one no vote on an issue on the Council. History didn’t start when Matt Czajkowski came onto the Town Council, or (apparently,for some of you) when he filed for Mayor.

  7. Runner

     /  June 7, 2010

    Mr. Harrison,

    How much was Chapel Hill’s annual spending budget when you joined the council 8 1/2 years ago? More importantly, what was Chapel Hill’s debt load 8 1/2 years ago?

    The difficult and practical decisions about Chapel Hill’s spending have to start someday. Why not start tonight?

  8. Thanks Ed for responding. Runner, Ed is perfectly capable of voting down the bond issuance.

    I was planning to speak to Council tonight but I realized that if what I have said to you and the rest of the crew hasn’t already swayed Council there’s little chance if any new comments, including highlighting the County’s current and predicted financial woes, will sway you tonight.

    I did find the budget memo a bit of a headscratcher:

    Title of Agenda Item: Adopt a Resolution Authorizing the Sale of $20.41 million of General Obligation Bonds.

    Council Goals 5: Improve Town’s Fiscal Condition.

    Background: In 2003, the voters of Chapel Hill authorized the Town to issue $29.36 million in GO bonds for a variety of capital projects in the categories shown in the table below. To date $8,950,000 of the authorized bonds have been issued leaving $20.41 million in Library, Streets and Sidewalks and Parks and Recreation bonds authorized and unissued.

    Fiscal Note: Debt service payments for this proposed issuance will be paid from the Debt Service Fund. There are adequate funds available in the Debt Service Fund to pay the debt service for these bonds without raising the dedicated debt service tax.

    Improve the Town’s fiscal condition? Breathtaking to say the least.

    And, of course, no commentary in the memo weighing the risks posed by Lot #5, possible loss of County per capita sales tax distributions, overhanging need to fund the retirement healthcare budget or a slew of other known issues. No real analysis of the pushing the debt to the max (just the comment that we can pay for it within the $0.093 rate – no mention that sticking to that rate is not a given).

    I do agree that tonight is a litmus test for determining how serious our leadership is in creating a fiscally sound basis for moving forward.

  9. WJ

     /  June 7, 2010

    As far as I know, the voters in 09 did not vote for mayor and town council those folks who were campaigning on fiscal prudence. The will of the voting public is for the town to spend this $20M capital expenditure money.

    The budget has an estimated 17.8 cents in additional property taxes in 5 years (page 6 of the budget), so that is where the money will come from to pay for the increases . Now I realize that this is just a several year estimate and will change, but it gives an idea.

    Also to a prior poster, if I read the financial statements accurately, Chapel Hill spent $58.2M in FY ending June 30, 2005 and $86.8M in FY ending 6/30/09. That is only a very small 49% increase in 4 years.

  10. Bill

     /  June 7, 2010

    Spend, baby, spend. You can then be the BP Oil of Towns! Go for it. We really need a bigger library, my very life depends on it.

  11. Bill

     /  June 8, 2010

    Congrats to the Town of Chapel Hill for continuing in its tax and spend ways. It’s only a few more pennies tax per thousand, after all.

    If I were the Orange Co Board of Commissioners, I would cut the donation to the library to $50k or so- passing the funding of the addition speaks very clearly that Chapel Hill can afford its library.