Council Workshop Tuesday on How to $pend a Million

By GEORGE SOUTHERN
Cape Charles Wave

November 29, 2013

Cape Charles Town Council is proceeding with plans to borrow an extra million dollars in the next few weeks, and members will discuss how to spend it at a workshop 6 p.m. Tuesday (December 3) at Town Hall. The problem is that the Town wants to spend closer to twice that much — an estimated $1.724 million.

Meanwhile, nobody seems sure how much money the Town already owes. The Wave reported (click here) that at the November 14 Council meeting, Councilman Frank Wendell asked Treasurer Kim Coates how much debt the Town currently owes. Coates was unable to say, but financial advisor David Rose thought it was around $8 million or $9 million. After consulting with bond counsel Kevin White, he revised that estimate to “about $10 million.” Town Council voted at that meeting to pay Rose $37,500 for his financial advice. Wendell says he still has not heard from Coates exactly how much money the Town owes.

In preparation for the Tuesday workshop, Coates has produced a one-page report entitled Town of Cape Charles Remaining Debt as of 11/26/2013 (click here). But the figures shown are not loan balances, but instead the remaining debt service. The only time total debt service equals loan balance is for a no-interest loan. Cape Charles is fortunate enough to have one no-interest loan with a balance of $4.7 million, but that’s a little less than half of the Town’s total debt according to estimates of Messrs. White and Rose.

The “Remaining Debt” report also omits four loans for police vehicles: a 2013 Dodge Charger, a 2013 Ford Explorer, a 2011 Dodge Charger, and a 2010 Dodge Charger. Interest rates on those loans range from a high of 6.6 percent to a low of 3.125 percent. Again, the loan balances are not known.

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Town Manager Heather Arcos has reported to Council that “refinancing would achieve a net savings while decreasing the overall term of the loan.” She was referring to the fact that Council has voted to refinance two 40-year loans, one from 1992 and the other from 2003, with a new 20-year loan. However, the 2003 loan was only for $62,500, while the 1992 loan was for almost $1.6 million. The latter loan has only 19 years left, so replacing it with a 20-year loan in effect increases, not decreases, the overall term.

As reported earlier in the Wave, the “net savings” from refinancing comes now. Ten years from now when the interest adjusts to an unknown amount, the “net savings” could become a “net expense.”

Town Council’s plan, in advisor Rose’s words, is to “take advantage of the up-front savings to layer-in new money with limited cash-flow impact over the next decade.” Rose calculates that the Town can borrow another $1 million and pay much of the debt service out of the “up-front” savings – at least for the next 10 years.

Rose also “structured” the proposed new and refinanced loans “to free-up cash flow savings through FY 2017.” That means the amortization schedule is not straight-line. In other words, for the first three and a half years the Town will “save” money by not paying down the loan. But this “cash flow savings” is not really savings – it just pushes the debt down the road.

What does the Town aim to do with another million-dollar loan? Now it gets interesting, because almost $900,000 is needed for improvements to the water and sewer systems alone. But the Town also wants over half a million dollars for a Harbor breakwater and attenuator, and another $300,000 for the Multi-Use Trail. The Harbor and Trail improvements were largely funded by grants, and the Town is required to pony up its share.

Where will the extra money (over and above borrowing) come from? There are only two sources: utility bills and property taxes. In the case of utility bills, each customer would pay an extra $15.50 a month for every $200,000 the Town spends. That amount would be added to the minimum monthly bill of $108 charged whether or not a customer uses a drop of water.

The Town’s 25-page information packet for the workshop is available here. The meeting is open to the public, but not for public comment.