Council opts against raising borrowing limit
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The final discussion item on Monday night's Marshalltown city council agenda covered borrowing for the upcoming fiscal year as the council was set to run over its self-imposed limit of about $9.8 million with the current slate of projects.
State law stipulates that cities can borrow up to five percent of their assessed property tax valuations, and the city, until a few years ago, had self-imposed a limit of 60 percent of that five percent before raising the number to 70 percent. With $11,356,000 in capital improvement projects currently slated for fiscal year 2024 -- $7.146 million for Main Street improvements, $3 million for street improvements, $710,000 for the State Street Stormwater outlet from North 3rd Street to North 4th Street and $500,000 for the sidewalk gap -- Finance Director Diana Steiner asked the council if they would prefer to raise the self-imposed cap to 75 percent or keep the current cap in place and remove one or more of the projects.
"You could change the policy or you could just do an exception this particular time if you want to go higher," Steiner said.
She then explained the concept of bank qualified debt and asked about the timing of when the bond sale would occur. Steiner asked the council which year they wanted to borrow, how much they wanted to borrow and which projects they wanted to do.
Councilor Barry Kell wondered which items needed decisions before Jan. 1 to move forward, and Steiner said all could wait until after the new year to borrow. Councilor Jeff Schneider asked about whether the Main Street project, which makes up the lion's share of the borrowing, would need to be in the current cycle as he did not believe construction would occur during 2024.
In response, Public Works Director Heather Thomas said the process is "on hold from a design standpoint" as they work through some creative placemaking and wayfinding items.
"If that proceeds here, let's say in the next three months with continuing with design, the intent would be that the project would go out for bid with construction not to start until 2025," Thomas said.
Councilor Greg Nichols then asked about when the dollars need to be secured, and Steiner said the city likes to have the cash in hand for most projects when they go out for bid. Councilor Gary Thompson inquired to Thomas about how necessary the State Street stormwater outlet project is for this year, and she explained that with the current construction, the storm sewer will sit with water until the outlet is tied further downstream.
"Is it important? I would say it's important. Timing wise, we can continue to maintain it for a year or two years with jetting and those kinds of things, but as a long-term practice, we would not like it to keep without an elevation outlet at the elevation it is today," Thomas said.
Thompson also asked if the $3 million for street improvements was in addition to the Road Use Tax (RUT), and she said the intent of the $3 million was different than the RUT money. The borrowed money would go toward crack sealing and joint sealing, and the RUT dollars go more toward simpler fixes like patches.
Councilor Mike Ladehoff asked about the status of East Main Street from 5th Avenue going east, and Thomas said the plans were submitted for final permitting through the Iowa DNR about a month and a half ago with the expectation of a two-month turnaround -- though Thomas noted that she believed the DNR was a bit behind schedule right now. Nevertheless, she said, the plan is to go out for bid this fall.
Kell asked another question about whether the amount and the timing needed to be decided at the same time or if they were independent, and Steiner reiterated that the council could either make a one-off exception to the policy or change the policy to raise the limit.
"And to be clear, that's not to just go blindly borrow money, but to maximize the amount we borrow, there needs to be some changes or concessions to what's already in the plan," Kell said.
Steiner added that because of the recent increase in assessed valuations, the borrowing limit will jump significantly next fiscal year. Thompson then suggested keeping the current cap in place, removing the sidewalk gap from the CIP and, for now, decreasing the street improvements to a number around $1.944 million to get to the limit.
In response to a question from Councilor Jeff Schneider, Steiner projected an interest rate of between 4 and 4.5 percent. In looking at the bigger picture, Nichols asked if there was a plan to reduce the city's debt or if the council would just continue to borrow up against the limit each year.
"That's council action," Steiner said. "We bring you the list and you agree or disagree. We put it in our capital improvement plan, but that's why we always come back before we borrow the money."
In response to a follow-up inquiry sent via email, Steiner reported that the city's outstanding principal debt as of June 30 is $66,200,865. Of that, $18,105,002 is repaid from enterprise funds (storm and sewer), and $13,405,000 is outstanding specifically for the new police and fire building. The amounts do not include debt from Marshalltown Water Works, as they borrow and repay their own debt.
Steiner then posed the question to the councilors of whether they would consider raising the 70 percent self-imposed cap, and Thompson was quick to say he wouldn't. He made an official motion based off of his previous suggestion of removing the sidewalk gap and reducing the street improvements from $3 million to whatever number would get the city under or at the limit.
Kell seconded the motion, and it carried by a unanimous tally. Steiner then asked for clarification on whether they would borrow the money during the current calendar year or the next one, and Thompson motioned to do it this year for fear that interest rates would increase if they wait.
That motion passed by a 6-1 vote with Nichols opposed.