City staff will recommend to Evanston aldermen tonight that they set new policies designed to trim the city’s long-term debt.
Depending on which of the proposed guidelines the aldermen decide to follow, the new plan could mean slicing the city’s general obligation debt by at least 20 percent to more than 50 percent.
City staff will recommend to Evanston aldermen tonight that they set new policies designed to trim the city’s long-term debt.
Depending on which of the proposed guidelines the aldermen decide to follow, the new plan could mean slicing the city’s general obligation debt by at least 20 percent to more than 50 percent.
The city now has one of the highest debt levels among a dozen metro-area communities studied in a staff report.
The reduction would require cutting back on planned capital improvement projects across the city for several years. The city typically uses general obligation debt to fund major construction projects ranging from park renovations to new fire stations.
The new policy recommendations set several different targets based on different yardsticks.
- The most austere measure suggests trimming general obligation debt to under $900 per capita — a 60 percent reduction from Evanston’s current level of $2,241 per capita. The average for the dozen nearby communities is $1,492.
- But that proposal is presented as an alternative to a much less restrictive idea — limiting general obligation debt per capita to less than 5 percent of income per capita, which is the average among the dozen nearby communities. That would require only a 20 percent reduction from Evanston’s current level of 6 percent.
- Another guideline suggests reducing general obligation debt to no more than 3 percent of the estimated market value of taxable property in town. That would require cutting the city’s general obligation debt by nearly half from its current 5.93 percent level. The average for the dozen nearby communities is 3.42 percent.
- Yet another guideline suggests reducing debt service costs to no more than 10 percent of total governmental fund expenditures. Evanston now is at 12 percent.
The staff report also recommends increasing the target level of general fund reserves from one month, or 8.33 percent of the annual budget, to between 22 and 30 percent.
Related link
Debt management policy memo (.pdf)
Commendable objective, questionable timing
While the goal of reducing debt is admirable, why should the City cut back now when interest rates are at record lows and the City has a triple A rating (meaning its cost of debt is as low as can be)?
Delaying capital improvement projects means that streets, parks and buildings will deteriorate further than their current state.
The goal of reducing the debts’ maturity is also admirable, but again, if the capital improvement project has a projected lifetime of greater than 15 years (e.g. sewers and water pipes), why shouldn’t the City finance the project with longer maturing debt?
Of course, one might argue that all this debt planning is like re-arranging the deck chairs on the Titanic of the City’s pension obligations.
Here’s a suggestion: have the City issue/market its bonds to its weathier residents for whom municipal bonds are an attractive investment.