A Christmas Present!

It isn’t often that a city gets a Christmas present!  You might think of a gift, a grant or other type of windfall but in Breezy Point the city got a Christmas present from Standards and Poor’s.  I believe the majority of people have of heard of this organization and know they are involved in financial issues but may not understand all that they do.  One of the functions they provide is ratings of municipal securities, bonds. 

Governmental units issue bonds for all sorts of public projects.  Everything from hospitals to bridges to local improvements are financed with bonds.  These in Breezy Point have been sewer and road improvements but we also financed the Public Safety Building with a municipal bond.  This past year we combined two outstanding bonds into a “refunding issue” which essentially means that the bonds were refinanced to get a lower interest cost.  In doing that the city sought a rating from Standard and Poor’s.  Having a rating lets the bond buyers better understand the local economy (or risk) that the buyer assumes in purchasing a bond.  At that time our rating was A+. 

Recently with the bankruptcy issues in some cities in California and more notably in Detroit, bond buyers have become a bit jumpy about municipal bond issues.  No one wants to lose money on a bond that they felt was adequately secured by the full faith and taxing ability of the governmental unit.  Rating agencies were taking the heat as they assigned a rating and perhaps the outcome didn’t reflect the actual situation.  With three rating agencies to compete for buyers’ attention they needed to do a better job with this.  They decided to change the review criteria.  Standard and Poor’s took the lead, closely followed by Moody’s.  With this change in philosophy and rating criteria the agency has started the process of review of all governmental units with outstanding debt.  Breezy Point was asked to provide additional information about its finances as part of the first wave of governmental units being reviewed.  

   

To make the story short the process involved a better explanation of reserves, investments and liquidly. Cash management was a factor in how the city operates keeping in mind our ability to pay the bills on a timely basis.  It was a bit tricky in that the city has established several new policies in how funds are managed.  Greater transparency in reserve funding for capital improvements and a general fund reserve policy was also established to develop priorities for funding.  This created a better sense of order while also showing the intent of funding. 

The Christmas present given us was after review by Standard and Poor’s, they upgraded our bond rating for the Refunding Bond from A+ to AA.  This is a step up in ratings.   This is a significant benefit to the city in terms of marketability of its bonds and lower interest rates on future bond issues.  The city has no immediate plans for issuance of new debt. 

Merry Christmas!

Now We Have Percheron Circle

To find your property you use an address.  This address is a physical location assigned a number on a street, in a town and state.  The address system that is used locally was developed to conform to the Emergency 911 System.   This system allows for a consistent approach in the addressing of properties for emergency situations.  

Periodically problems are found in the system.  Things like wrong addresses, even numbers of odd side of street, the wrong street, or other problems.  With the new name sign for roads being installed a problem was discovered in Sioux Drive.  The address for the property was listed as Percheron Drive.  The road designation of the property needed to be changed to match the road.  

In looking at this property another property came up for consideration.  The property was properly addressed on Dakota Drive.  Dakota Drive was the name of the platted street but the street really was an extension of Percheron Drive.  Having one street end at an intersection with a continuation of that street having another name didn’t make a lot of sense.  It was suggested the street be named to fit the scheme of the layout of the street.  As the street ends in a cul-de-sac it would typically have a designation of “Court” of “Circle”.  In Breezy Point, most cul-de-sacs are designated as a “Circle”, letting drivers know the street is a cul-de-sac.  

Changing this street name from Dakota Drive to Percheron Circle fits the street pattern, making it more recognizable for emergency calls.  Making that change was requested by the county.  The City Council approved that change and so Dakota Drive will no longer be and Percheron Circle becomes the new name for this section of roadway. 

Paying off Debt

Most of us have loans of some kind.   The type of loan may be for a car or the mortgage on your house.  Cities are no different.  Cities take out loans called bonds to finance things like roads and sewer improvements.  Some of these are repaid by assessments from property owners.  Some are paid by taxes and sometimes a portion is paid by an enterprise fund like the sewer fund.  In Breezy Point we have bonds that are paid with various approaches using one or all three of these revenue sources. 

 

In managing debt instruments the city has a specific fund that addresses only debt.  All revenues received go into this fund.  All bond payments come from this fund.  Each bond carries its own payment schedule.  Revenues are budgeted annually from anticipated assessment income and tax levy.  If the bonds had a sewer payment component, a percentage of the amount of debt service required, is paid annually to the debt service fund. 

  

Bonds are structured so they are paid off over the course of many years.  Typically bonds will mature in 15 or 20 years with annual payments made to retire the debt.  They also have a “call” feature.  Typically about half way through the term of the bond there is an opportunity to pay it off.  This is called an early redemption.  This call feature provides for some flexibility in debt service management.  If the bonds can be refinanced to take advantage of a lower interest rate they can be called and new bonds issued.  The bonds could also be restructured at call to extend the term with a new bond.  The call also allows the payoff of a bond if funds are available. 

The city has two outstanding bonds that have met their call date.  The debt service fund had adequate resources to pay off at least one on these bonds.  There is a good deal of interest savings available if they are paid off early.  Paying off both bonds has been a goal.

Some of the outstanding bonds the city holds require an annual sewer contribution.  This contribution extends through the life of the bonds, essentially owing the debt service fund revenues for bond payments.  It was felt that if these funds were prepaid to the debt service fund, both bonds could be paid off. 

After accomplishing a cash flow analysis on all outstanding debt, several approaches were developed to address the early payoff off the two bonds.  The differences in these approaches were the dates of redemption and how sewer payments would be received.  Each approach saved a considerable amount of interest with an early payoff of them.  Each approach also freed up additional resources as revenues previously used for debt service can be used elsewhere.  From a very simple perspective the sooner the bonds are paid the more the interest savings.  With that in mind the use of owed sewer funds became an important component in providing for a payoff.  

To make a long story short the owed sewer funds will be prepaid to the debt service fund.  This makes adequate resources available to pay off the bonds.  The City Council approved the early redemption of the 2005 and 2008 bonds.  They will be paid off in February, thus reducing the number of outstanding bonds to one. 

2014 Budget and Levy

The Breezy Point City Council adopted the levy and budget for 2014.  The levy, after being reduced or held flat over the past 4 years, was increased $34,000 for 2014.  This represents a 1.94% increase.  The budget continues to be rather frugal.  As we look at budget to actual figures for 2013 we’re finding it difficult to maintain certain line items at budget as costs have increased and needs don’t go away.  The bottom line for 2013 should show we’re slightly under budget but there was little room for finding continued savings.

 

For 2014 the total levy for the city is $1,753,000.  This levy includes a reduction in debt service of almost $70,000.  It also saw a reduction in the cemetery levy of $2,000. Areas where increases in expenditures were shown were a cost of living increase of 2 percent and increases in employee health insurance costs.  The largest line item increase was for road improvements moving from $25,000 to $91,000.  This increase is for an overlay to Breezy Point Drive and some seal coating of roadways.  These are really deferred maintenance.  A replacement public works truck will be acquired and an annual replacement of a squad car.  Both of these expenditures have a significant portion of the costs funded in prior years.  Dust control will see an increase of 10%. 

The debt service levy was substantially reduced.  This was accomplished by several actions to allow for that change.  A refunding was accomplished on two bonds which reduce the annual debt service requirement.  For 2014 that saves approximately $8,000.  The remaining bonds were anticipated to be called allowing for that debt levy to be removed from the budget.  Finally, some debt service obligation was assumed by the debt service fund balance.  Going forward into 2015 the debt levy obligation will remain at $200,000 while for 2014 the total levy amount was $202,390.  Making these changes was a goal of the city for a number of years.  Timing became the key as bonds could not be paid off until the call date was reached. 

 

Successes with the budget were achieved this year but not without a good deal of hard work.  The city, much like other jurisdictions, has seen taxable values decline.  With the flat or reduced levies that occurred over the past 4 years the city had in the past found economies in operations and with delayed actions.  Some of these actions could no longer be delayed.  New economies are hard to find and the demands of the public are always on the rise.  I feel the outcome was fiscally responsible while making some headway with moving forward.

First Snow!

The first snow of the year seems to be very trying on most people.  You would think, hey, we’re from Minnesota, we know about this stuff.  We all forget about some of it.  We need to learn to drive in the stuff, again.  That means no erratic changes in direction, slow acceleration and giving yourself plenty of time to slow down and stop.  

Then there is snow removal.  Walkways and driveways get attention from property owners.  Streets get attention from the public works crew.  Their plowing skills are a bit rusty but like riding a bike they don’t forget how it is done.

  

But the first snow of the season has its special challenges.  The edges of roadways don’t have the definitions they had without snow.  Snow blurs the lines with the blanket of white.    With the first snow the applications of salt and sand haven’t been seen in 6 or more months making it a bit more difficult to scrape the road efficiently.  With applications of salt and sand from a previous snow event, the process of removal becomes easier to accommodate.  In addition, without the sand or salt residual, traction can be a problem.  This effects not only vehicles moving around but also the snow plows.  The first snow seems to always be wet and heavy.  Temperatures are such that the snow carries a lot of moisture and therefore weight.  Great snow ball or snowman snow!  Kids like it but plow drivers get frustrated.  Traction becomes an issue.  Weight of the snow off the plow becomes an issue and the time it takes also becomes an issue.  Often time the weight of the snow coming off the plow can cause damage to mailboxes. 

As winter progresses, we maintain a residual of salt sand on the roads.  The temperatures get colder and the snows lose their high moisture content.  Snows are lighter in weight.  The plows move with greater speed and efficiency.  Road boundaries are well defined from previous snow events and the plow drivers find their groove.  

The drama of the first snow easies as we all remember (or learn) how to deal with these things, these snow events, and the concept that we may have to wait to get plowed out.  With 62 miles of roadway in the city and 5 personnel doing the work it can take some time to get it all done.  Most residents understand but some new residents think it should be done like they do in the metro area.  The resources aren’t here to do that.  The first snow always carries its problems and patience isn’t always there for those who expect results.  A wet large snow fall as the first event of the year is always the hardest for all of us to accept.  Its winter!