City hall financing options presented

The Maricopa City Council heard a presentation last night from the city’s financial advisor, Greg Swartz, to consider options to financing the new city hall complex.

“We are looking at historically low borrowing costs,” said Swartz, a senior vice president with Piper Jaffray, an international investment bank headquartered in Minneapolis, Minn. “You either have the choice to cash-fund the city complex or debt-finance the city complex and in next the 10, 15 or 20 years repay those obligations.”

The presentation was for information only and the council took no action.

The estimated cost to build the new city hall is $15.4 million, and the cost for a new police station is pegged at $3.4 million.

In September, Assistant City Manager Roger Kolman told council if it continues with its current strategy to build a new city hall and police station without seeking any alternate sources of financing, the city’s $35 million capital reserve fund could be nearly $1.5 million in the red by 2014.

A capital reserve fund is money set aside to cover specific long-term projects rather than day-to-day operating expenses.

Swartz said the city’s only outstanding debt is a $20 million general obligation bond voters approved in 2008 for construction of a city recreation facility. The bond is being repaid through a secondary property tax.

The city has another $45.5 million it can authorize for general obligations bonds.

Swartz defined a general obligations bond as a debt that goes beyond 13 months and require voter approval.

Swartz said Maricopa is in the bottom third in the state for debt per capita.

“That’s a good thing,” he said.

Swartz said the potential advantage of debt financing is the city can defer payment in a “historically low interest rate environment” instead of using its cash.

“You can invest the cash at a rate higher than what you are paying on the debt,” he said. “If you are wanting to borrow, you have the capacity to do it.”

Mayor Anthony Smith asked for clarification on the need for financing based on the city’s financial health.

“With the city complex we have made certain obligations and it appears from the presentation our financial situation is fairly healthy,” he said.

Smith asked what the variance was from what the city would like to commit and what was needed to build the complex.

“If it’s a little bit of variance we may not want to go down some of these paths,” he said. “But if the variance is larger we can take advantage of these.”

Kolman said the issue is having cash in the operating budget to make debt service payments.

“We could go borrow $18 million to pay for the city hall, but will we have revenue in the future to make the debt service payments?” he said.

Councilmember Alan Marchione said he would be in favor of an annual appropriation debt, in which the council annually appropriates funds to its debt service.

“I’m not comfortable right now with cash-funding city hall,” he said. “I’m not comfortable with where our accounts are going to be in two-and-a-half or three years.”