BRISTOL, Va. – City leaders spent nearly two hours Friday questioning various aspects of a proposed $15.6 million debt restructuring plan before agreeing to consider it later this month.
The council plans to hold a public hearing during its Sept. 28 meeting before taking action on a plan recommended by Richmond-based financial advisers Davenport & Co.
The restructuring is designed to free up cash-flow and eliminate the city’s reliance on tax anticipation notes to pay regular operating expenses between biannual real estate tax collections. In three of the previous five fiscal years, the city has borrowed and repaid nearly $20 million worth of TANS and related interest charges.
“You need to get away from the TANs on a permanent basis,” David Rose of Davenport & Co., told the council. “If we don’t get rid of the TAN, you’re costing the city millions of dollars. And if you don’t do the restructuring, there is no way to get rid of the TAN without raising taxes an amount so great the outcome would be of epic proportions.”
TAN borrowing in fiscal 2005-06, fiscal 2008-09 and fiscal 2009-10 has cost about $286,000 in direct interest charges and $261,000 in lost interest income – if the city had maintained an adequate cash reserve balance, according to Roland Kooch of Davenport & Co.
“The real cost to the city, if we average $300,000 per year, is about $6 million over 20 years,” Kooch said.
Two months into the current fiscal year, the city has already been forced to borrow almost $3 million, with another $1.5 million expected by November before the second half of the biannual tax collection funds arrive.
The restructuring plan is designed to free up more than $3 million in debt service costs during the next two fiscal years and increase the city’s cash reserve to nearly $6 million.
“If you do this restructuring and dedicate virtually all of these savings to this, you will eliminate the need for the TANs in two years,” Rose said.
With the consensus of the council, Mayor Don Ashley called for a resolution to express the council’s commitment to directing the savings into the reserve fund and not using it to balance future budgets.
Cashwell said the city’s ultimate goal should be to expand its cash reserves to about $12 million so unforeseen or emergency expenses could be more easily dealt with.
The proposed restructuring plan includes an additional $1 million to re-design and build a new entrance road into the city landfill. Rose said the road would streamline landfill operations and generate about $400,000 to $500,000 in savings its first year.
“I think we had a lot of good questions and I think we are all better informed,” Ashley said afterward. “I’m more energized about this with the commitment to use these fund to eliminate the TANS. That practice will help us improve cash-flow and the need to borrow.”
dmcgee@bristolnews.com | (276) 645-2532
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