Reviewing the Capital Budget - Controlling Debt

August 12, 2011 12:57 PM

I spend a good deal of this summer with city staff reviewing the City of Madison capital budget for 2011. When I came into office I treated the existing capital budget as though we were starting over. In some instances there was not much room for adjustments. By time I was inaugurated, in April, commitments were made to spend tens of millions of dollars.

The adopted capital budget totaled $249,153,890. The source of this spending includes grants, special assessments, and most importantly, what is referred to as general obligation borrowing, or GO debt. Our goal was to reduce the GO debt as much as possible. For every million we reduced in borrowing, we would save the taxpayers $130,000 in debt service payments each year for a decade.

After many hours of meetings which included over thirty city staff members who participated in one way or another, and every member of the city council, we came up with a series of recommendations which will be finalized in the next two weeks. Some of the projects were canceled, such as the bicycle station associated with the now defunct high speed rail system.  (Correction- the blog should have read " The 2011 bike station funds were pushed back for reauthorization for next year.")   Others were reduced, such as some of the street reconstruction and replacing projects. Others were pushed back for re-authorization next year including portions of  information  technology projects.

All told it looks like we will reduce the GO borrowing from $140,384,052 to $80,199,750.

This means that we will reduce city costs for debt service next year by roughly $7.8 million. That is $7.8 million that we either do not need to raise in additional property taxes or is available for basic city services such as public safety, snow removal and parks and recreation.

The trend line that shows the rising portion of the city budgeting going for debt service is seen in the chart below. The chart also shows the projection if all of the planned activities were to go forward through the year 2018. It is our goal to bring that line down in stages to first 14% and then 12.5% over the next 5 to 7 years. (In a subsequent post we will show what the line looks like with the final changes.).

I have long argued that public investment in infrastructure and in human capacity are the keys to stimulating private investment which in turn creates jobs, markets and a sound economy. It pains me to have to have reduce our investment in infrastructure and slow down some of the needed projects. However, we also cannot afford to spend too much of our revenues on debt which leaves less funds for everyday city services.

There are some things we can do in the future that will prevent a recurrence of this problem:

  • No borrowing for items that should be in the operating budget.
  • Keep the level of borrowing and investment in infrastructure on an even level. Note the drops that took place in the early part of the last decade, particularly 2007 and 2008. In those years we did not borrow enough for needed infrastructure.
  • Grow the city's tax base so that the cost of borrowing is spread over a larger base.

 Email to a friend