Evanston’s chief financial officer urged aldermen Monday night to increase fund reserves and put more projects on a pay-as-you-go basis to gradually bring down the city’s debt.
Marty Lyons said that for capital improvements that are ongoing expenses — like replacing the city’s aging water mains — it would save the city money to avoid the cost of borrowing to fund the projects.
Even with inflation rates as low as 2 percent, Lyons said, it still costs the city 3.5 to 4 percent a year in interest payments to borrow money for capital projects.
And with $4 million to $5 million worth of nearly 100-year-old water mains needing replacement each year, he added, it’s not the sort of one-time cost that logic suggests should be financed.
By contrast, he suggested, it could make sense to borrow money to purchase a $1 million fire department ladder truck. Those typically last 20 years and the city only has two of them, so the city can smooth out the cost over time with a loan.
While the city has very high ratings from municipal bond rating agencies, it has been criticized in ratings reports for having a higher than average level of debt, and Lyons said the pay-as-you-go approach would help gradually bring debt levels down.
Alderman Ann Rainey, 8th Ward, raised objections to the change — saying it makes sense to to let future taxpayers — who will enjoy the use of the new water mains — pay for them. And, she said, higher costs now would hurt today’s residents.
But Alderman Coleen Burrus, 9th Ward, said it’s important to use the pay-as-you-go approach to reduce the city’s debt. “It’s something we’ve been putting off for years,” Burrus added.
Mayor Elizabeth Tisdahl said that under current policies, “We’re leaving our children with huge amounts of debt, and pay-as-you-go is the way to go.”
City Manager Wally Bobkiewicz said the other option to reduce debt “is to stop doing things.”
He said it the council could agree on some city activities and programs that could be scaled back, it would “free up some cash to further more important council goals.”
Lyons also called for increasing the level of reserves in most city funds to the equivalent of two month’s worth of spending — or 16.6 percent of their annual budgets.
Council policy now sets reserve levels of some funds at about one month of spending and the city lacks policies for how much should be maintained in reserves in other funds.
Setting higher reserve levels, Lyons said, would help the city manage more effectively through economic shocks like the recession that hit a few years ago.
Aldermen took no action on the proposals Monday night, but are expected to act on them this fall as they adopt a budget for 2015.