Market drop benefits Minnetrista

Trust me I’m not celebrating the stock market decline and the impact it’s having on our 401Ks but the last few days and the timing of Minnetrista’s General Obligation (G.O.) bond issue for the water tower was nothing short of serendipitous for the city. When stocks decline investors run toward government bonds for stability and this week’s market drop spelled for a great bond deal for Minnetrista.

Last night the council approved $2,390,000 in G.O. bonds with $1,910,000 going toward the new water tower and $480,000 for capital equipment. With the cash incentives offered by investors we were able to lower the amount of the bond by $125,000 and got an excellent interest rate of 1.622%.

I had previously expressed concern about issuing G.O. bonds for building a water tower because they pledge the full faith and credit of the city when the intention is, and always has been, for water revenues (and only water revenues) to pay for 100% of the debt If you never changeservice on the water tower. G.O. bonds actually mandate that if city water revenues don’t keep pace sufficiently to pay the debt that the city must levy for it. That still concerns me and I would’ve preferred to have issued a revenue bond instead where the investor takes that risk instead of taxpayers. A revenue bond may have seen as good of an outcome as the G.O. bond did yesterday, but I was outvoted and accept that.

Given the great bonding deal we got yesterday I decided to vote to approve it. The reduction of $125K in the bond and the excellent rate we received mitigates, in my opinion, some of the risk factors involved in meeting the debt payments.

I abhor profiting from misfortunes but if a silver lining can be found in the recent stock market volatility I’m grateful that at least there is a benefit to Minnetrista, if not my 401K.

New water tower financing – Who assumes risk?

There is a big risk factor looming in November that could profoundly impact the direction of our economy. Minnetrista will be relying on revenues coming from current and future water users to finance a new $2.3M water tower in the southern sector and while we’ve been enjoying a robust growth period with a booming housing market, what if all that comes to a halt? We’ve seen what happened in 2008 and elections are known to impact the economy in profound ways.

The city council has heard from financial consultants, engineering firms, and staff urging

water tower

the city to act now but none of them are Minnetrista taxpayers. They are stakeholders benefiting, directly or indirectly, from issuing the bond, constructing the tower, or growing the city’s debt and size of the city’s budget. That’s just a fact, but an important fact to consider. They are all competent and good at what they do but their interests are, understandably, their interests.

Don’t get me wrong, we need to build the water tower and we need to do it soon. Our growth numbers show that by 2030, if growth continues at the current rate, we won’t be able to service the southern sector adequately. But it takes about 2 years to get a water tower online and there is no imminent crisis, despite what some stakeholders may assert.

There are two possible ways, with some very important differences, to finance this project. The council, however, was advised Monday night to consider only the first:

  • General Obligation (G.O.) Bonds – Pledge the full faith & credit of the city and require the city to use whatever means possible, including increasing the citywide tax levy, to cover the debt. These are called “General” obligation bonds because they are typically used to finance projects that benefit the general community at large, not just a sector of it. In this case, however, this project only benefits city water users. With a G.O. bond the entire Minnetrista tax base assumes the risk of whether our housing growth and associated water revenue increases at a sufficient rate to cover the bond.
  • Revenue Bonds – Finance income-producing projects and are secured by a specified revenue source, in this case water fees and new connection charges. A revenue bond would rely solely on the revenue coming from water fees to pay for the bond without putting the “full faith & credit” of all Minnetrista taxpayers on the line. That means the city would not be required to increase the tax levy to cover the debt if, for any reason, future water fees weren’t enough. Revenue bonds put the risk on the investor purchasing the bonds rather than all Minnetrista property owners, regardless of whether they’re on city water.

My preference was to hold off on authorizing the bond issuance until after the November elections when the risk associated with our growth projections might be better understood. If it appears the economy will remain on track going forward, a G.O. bond may be a good option then. Considering the economic uncertainly that lies ahead I am not comfortable pledging the full faith and credit of the entire city on a G.O. bond today. A revenue bond wouldn’t do that and is the only responsible choice today, in my opinion, to protect Minnetrista property owners.

Unfortunately the council succumbed to the pressure and voted 4-1 Monday night to pass a resolution (pg 57) amended to provide for the sale of $2.5M in G.O. bonds ($2M for the tower; $500K for CIP) with plans to award the sale of the G.O. bonds on March 9, 2020.

I’ll need to update this debt chart:

debt growth
2016 Includes all debt types, levied and unlevied (revenue pledged)

*The narrative in this post is publicly available by viewing the Monday 2/3/2020 council meeting video and listening to the 2/3/2020 work session recording.

Put the brakes on

Watch a representative from Ehlers, the city’s contracted financial advising firm, who gets paid to help cities borrow money, defend Minnetrista’s weak debt profile from Standard & Poors in this video from Monday night’s council meeting, rationalizing that because everyone else does it, it really isn’t a big deal. Well, of course a firm specializing in debt issuance would see it that way.

S&P Debt RatingMinnetrista’s debt service is 18.6% of total government fund expenditures and that is high, according to Standard & Poors which isn’t a firm specializing in debt issuance. They specialize in evaluating the credit worthiness of organizations. Perhaps we should heed the assessment from S&P rather than go along with the don’t worry be happy advice from our debt issuance firm.

debt growthBecause a city can just take the money out of constituents’ pockets it carries an obligation to make sure it manages debt responsibly. Even the Ehlers rep estimated Minnetrista would need to almost cut its debt service in half (reduce it to 10%) to change the S&P rating. Minnetrista needs to put the brakes on. Apparently so do a lot of other Minnesota cities.

Monday night’s discussion centered around refinancing some G.O. bonds and the city’s ratings relative to receiving favorable bids. Having a AA++ rating is a good thing and the city’s finances are strong partly because our residents are relatively affluent which translates into what they call a “high tax capacity” (there is plenty more to take) and there are funds stashed away in “special” funds that aren’t being used. But bond ratings are not the point here. Saddling future generations with debt that keeps growing is the point.

The eight page Standard & Poors rating wasn’t in our council packet or available to the public prior to the meeting.  I had to request a copy of the rating assessment to review prior to the meeting and asked that it be provided to the council. They had planned to hand it out during the council meeting. If residents would like a copy they can call city hall.

 

“A Drop in the Bucket”?

“A DROP IN THE BUCKET”? The Minnetrista City Administrator thinks an estimate, provided by a frequently used engineering vendor, that is more than 60% higher than it should be is just “a drop in the bucket” when considering the total cost of a potential water project ($2.3M) in Hunters Crest.

At the September 17, 2018 council meeting a resident, structural engineer, addressed the council with concern over what he considered a “ridiculously high” estimate on conducting soil and water level testing on a preferred site in Hunters Crest. The two options by the city’s preferred vendor are below:

estimate.jpg

The gentleman addressing the council during the “Persons to be Heard” portion of the meeting contacted a soils engineer that indicated an overly generous estimate for this work shouldn’t be more than $6,000.

bucketPerhaps a $4K-$5K overcharge to the city is a “drop in the bucket” to our city administrator who isn’t a taxpayer in Minnetrista. Multiply these “drops” that will accumulate as this water project is designed and built. Hmm, what’s 60% of $2.3M?

Here is the video from the September 17th meeting cued up to the comment: City of Minnetrista 9/17/18 Council Meeting

July 13, 2018

WE NEED ANSWERS to these questions before taking additional steps toward spending millions on another water tower and treatment plant in the Southwest sector:

1. Minnetrista’s new 2040 Comprehensive plan shows a total number of municipal water connections in 2015 as 1,648 but the commissioned study shows far fewer connections at 1,245 in 2015. We should have accurate data from 2015. Why are these numbers so different? When I see discrepancies like this it doesn’t give me confidence in our growth projections.

2. According to Minnetrista’s 2040 Comprehensive plan there has been a downward trend in Total per capita and Maximum Daily Water Demands for the past several years. Why does the commissioned study show Maximum Daily Per Capita Water use increasing by 78% in 2016 (from 198gpd to 353gpd)? Are these estimates or actual numbers, and if actual what was the cause of the dramatic rise?

3. Why are the Maximum Daily Demand numbers missing for 2011? All years preceding and post are there. We should have this number in our system.

4. If a new tower is built what would the estimated average cost be for city water users? What is the best case scenario (we reach growth projections anticipated) and worst case (we don’t). I’m asking for estimates, not actuals. I realize there are unknowns (interest rates, timeframe, construction costs, possible land acquisition) but we need to do a business case/risk analysis before going forward. Let’s identify the variables, plug estimates in and figure it out.

5. Will the cost for the new water tower and its maintenance be spread across all city water users or only those in the SW sector that are served by that system?

6. What is our break-even point, i.e., when we have enough new water connections and users to pay the debt service on the revenue bonds (money borrowed to build tower)?

7. How many new water connections are anticipated in the SW each year? What is the Average Water Use per connection in the SW? Have we asked the builders (Matamy, HP Holdings, etc) for their new construction estimates? It isn’t enough to just look at the total number of building permits throughout the entire city in projecting future growth and water use. Some of our past growth has occurred in other parts of the city. There is also the fact of diminishing land available for growth in the SW. Growth cannot be projected to continue steadily forever as it will undoubtedly diminish over time as this area reaches capacity.

8. Are we pulling annual water usage only on connections that were active for the entire year? If we’re not then the Average Daily Water Use Per Connection numbers are not accurate in the commissioned water study.

June 30, 2018

CLOSED DOOR MEETING ON WATER TOWER. As a result of questions raised about the commissioned water tower study at our last council meeting it was agreed to have some objective eyes review the report and to have the Fire Chiefs from St. Boni and Mound provide guidance on water storage needs for fire suppression. Fire suppression has been the primary reason given in the past for the urgency of a new water tower in the SW sector of the city but recent fire flow tests in that area have shown adequate flow rates well within standard requirements.

As the city council liaison on both the Mound and St. Boni Fire Commissions I informed the City Administrator that I expected to attend any meeting that was called with the two Fire Chiefs on this matter, my goal being to observe and ensure transparency. I was told, in no uncertain terms, he didn’t want me to attend and then I learned he met with both Fire Chiefs yesterday without informing me of the meeting. Not surprised. Millions are on the table and transparency will take a back seat.

As a council member and Minnetrista taxpayer I want to make sure we make decisions on infrastructure projects like this using unbiased advice from entities that don’t stand to profit from resulting contracts. If we legitimately need a water tower to support the SW area then we should build it but when the city insists on closed door meetings and intentionally avoids transparency it can’t help but breed distrust.

June 14, 2018

IF AND WHEN MINNETRISTA NEEDS ANOTHER WATER TOWER. A year ago we were told we desperately needed a new water tower in the southwest corner for fire suppression in the Hunters Crest area. We were told the hydrants there were only putting out 500 gallons per minute (gpm) which wasn’t sufficient and water tanker trucks were still needed for fire calls there. Turns out that’s not true. I requested we have the hydrants tested for flow rates and the report we received actually shows flow rates there of 1000-1200 gpm. So it appears the urgency is no longer an emergency. Don’t expect the urgency to go away though…there are millions of dollars at stake here and we will still see a frantic push to buy land and build a tower anyway. You’ll hear that we urgently need it for future population growth but the historically exaggerated population numbers used (see pop growth chart), even if accepted as accurate, show that need isn’t until 2030 if (and that’s a big if) that growth materializes.

If those inflated population numbers don’t materialize after the city purchases revenue bonds (which are normally paid back with user fees) it will be all Minnetrista taxpayers left holding the bag. We need to make sure, before spending millions on a huge infrastructure project like this, that we are making decisions based on accurate, factual information and not on overblown predictions that may never materialize. We can’t let vendors pressure the city to line their pockets and cause Minnetrista to take on growth just to pay off debt.

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