News from Patrick Flynn

We had another budget work session on Friday, October 16, to discuss the Fire, Finance, OMB, Mayor’s, Parks & Recreation and Library departments.  Some of the points discussed included closure of the South Fork fire station (if I understand correctly this is a relatively remote station staffed by auxiliary – part time – firefighters), my point that an underfunded Community Service Patrol contract results in more costly responses from AFD & APD, the “blending” of managerial aspects of the two Parks & Recreation service areas and reductions in library hours (especially at branches).  So while I’ve heard concerns from a variety of folks about cuts in municipal services I feel the first step is to gain some clarity about the structure of the budget.

You may recall my mentioning the administration’s proposal to use debt refinancing in order to free up cash in 2010 and 2011.  Here are the bullets from an October 2 slide entitled, “Tool: Debt Refinancing.”

• Propose to refinance General Obligation debt to provide budget relief
• $12.5 million in 2010
• $10 million in 2011
• $22.5 million will be repaid over 18 years

I asked for more information, especially with regards to effects on the tax cap, at a Budget & Finance committee meeting on Thursday the 15^th.  We didn’t get to the topic until the end and didn’t have much time to discuss it prior to adjournment, which left my knowledge base wanting so I followed up with an e-mail.  That triggered quite a string, much of which is included below (I deleted some bits I considered immaterial):

From: Flynn, Patrick P.
Sent: Friday, October 16, 2009 4:37 PM
To: Johnston, Jennifer; Frasca, Cheryl L.; Mahoney, Lucinda M,

Jennifer, Cheryl & Lucinda,

I apologize for being a bit dense, but I remain unclear on the effects of the debt refinance on the tax cap and how long-term finances would be affected if we simply used tax revenue and/or state assistance to make those payments in 2010 & 2011.  Given that we’re rapidly approaching the time when we need to actually pass a budget I’d suggest we four schedule a time to talk this through.  Next week, particularly around mid-day, looks pretty good for me thus far.

Patrick

___________________________________________

From: Mahoney, Lucinda M.

Sent: Friday, October 16, 2009 10:30 AM

To: Johnston, Jennifer; Flynn, Patrick P.; Starr, William E.; ‘Elvi’; Claman, Matthew W.

Cc: Frasca, Cheryl L.

Subject: Additional information about the debt refunding

Good morning,

I talked with our financial advisor yesterday about the refunding debt payment schedule to better understand the maturity dates.

I was advised that the refinanced bonds will be repaid over an eighteen year time period, but not longer than the original maturity date of the original bond.

Please let me know if you have any additional questions.

___________________________________________

From: jjohnston@gci.net [jjohnston@gci.net]

Sent: Friday, October 16, 2009 9:30 PM

To: Mahoney, Lucinda M.; Flynn, Patrick P.; Starr, William E.; ‘Elvi’;

Claman, Matthew W.

Cc: Frasca, Cheryl L.

Subject: RE: Additional information about the debt refunding

So then it is a basic refinancing then, is that correct?  Jennifer

___________________________________________

From: Mahoney, Lucinda M.

Sent: Saturday, October 17, 2009 10:12 AM

To: Johnston, Jennifer; Flynn, Patrick P.; Starr, William E.; ‘Elvi’; Claman, Matthew W.

Cc: Frasca, Cheryl L.

Subject: Additional information about the debt refunding

It is technically called a refunding. Unfortunately there are no “savings”. We are pushing our debt payments out into the future, but still within the original maturity dates.  Because we are paying the debt off in later years we incur additional interest.

I will go over the detailed schedules with you on Monday so you can see the full impact.

________________________________________

From: jjohnston@gci.net [jjohnston@gci.net]

Sent: Saturday, October 17, 2009 5:15 PM

To: Mahoney, Lucinda M.; Flynn, Patrick P.; Starr, William E.; ‘Elvi’;

Claman, Matthew W.

Cc: Frasca, Cheryl L.

Subject: RE: Additional information about the debt refunding

I guess where I was confused is that it was still within the original maturity dates…Thank you.  Jennifer

________________________________________

From: Claman, Matthew W. [mailto:ClamanMW@ci.anchorage.ak.us]

Sent: Saturday, October 17, 2009 11:19 PM

To: Johnston, Jennifer; Mahoney, Lucinda M.; Flynn, Patrick P.; Starr, William E.; ‘Elvi’

Cc: Frasca, Cheryl L.; Gruenstein, Barbara A.

Subject: Additional information about the debt refunding

The email exchange raises different questions…

1. When the voters passed the bonds, what was the authorized length (years) of the debt? (Asked another way, did the voters place any limit on the debt term?)

2. When we sold the bonds on the market, did we use a 20 year maturity period? If not 20 years, what was the term?

3. When we sold the bonds, could we have used a longer maturity than 20 years (or whatever length we sold)?

4. Assume for purposes of the next question that the bonds under discussion are 20 year bonds. Is the proposal to increase the payment term to something great than 20 years? If so, how many total years?

Finally, I think the meeting needs to be noticed as a meeting of the Budget/Finance Committee. And we probably need at least 24 hours advance notice of the meeting.

Thanks,

Matt

________________________________________

From: jjohnston@gci.net [jjohnston@gci.net]

Sent: Sunday, October 18, 2009 9:24 AM

To: Gruenstein, Barbara E.; ‘Bill Starr’; Claman, Matthew W.; Flynn, Patrick P.; Gray-Jackson, Elvi; Mahoney, Lucinda M.; Frasca, Cheryl L.; ‘Jason Bergerson’

Subject: Meeting

Barbara will you notice a meeting of the Budget and Finance Committee for Wednesday and noon to discuss the refunding of debt and how it relates to the tax cap?  Also, is the room on the second floor is available?  Thank you.  Jennifer

Editor’s note: that Wednesday meeting is now slated for 10:30 am.

Based on what I know thus far, I’m growing less comfortable with this proposal. I understand the use of debt refinance to free up cash flow but this seems to simply shift debt service costs to future years when we may still have the means to make the payments, at least in 2010.

The other side of the structure equation is the School District budget, which is promulgated by the Anchorage School Board but funding for which is approved by the Assembly.  In response to a request from the School Board for guidance on how much property tax revenue they should expect next year Jennifer Johnston asked that I spearhead construction of that estimate.  That led to a resolution, upon which we will likely take action on October 27 meeting, indicating the Assembly’s willingness to provide a general fund property tax contribution for 2010-11 equal to the 2009-10 level, with up to 2.5% growth for functions the School District absorbs from the municipality (like paying for School Resource Officers).  Debt service would be fully funded and any state and federal funding would be approved.

Given all of that, I want ensure we have a clear revenue picture prior to making decisions about how to allocate those resources.  Once that’s in place I’ll begin to address the myriad of funding requests we’ve seen in the past couple weeks.

Regards,

Patrick Flynn