CAPITAL IMPROVEMENTS COMMITTEE

200 E. Wells Street City of Milwaukee Milwaukee, Wisconsin 53202 Meeting Minutes CAPITAL IMPROVEMENTS COMMITTEE ALD. JOSEPH DUDZIK, CHAIR Ald. Robert Bauman, Ald. Michael Murphy, Ghassan Korban, Martin Matson, Mark Nicolini, and Mariano Schifalacqua Staff Assistant: Tobie Black, 286-2231; Fax: 286-3456, tblack@milwaukee.gov Fiscal Planning Specialist: Kathleen Brengosz, 286-3926, kbreng@milwaukee.gov Wednesday, May 25, 2011 9:30 AM Room 301-B, City Hall Meeting called to order at 9:37 a.m. Members Present: 7- Gerard Froh (Ald. Murphy Alternate), Jeffrey Mantes, Craig Kammholz (W. Martin Morics Alternate), Mark Nicolini, Ald. Robert Bauman, Ald. Joseph Dudzik and Mariano Schifalacqua Excused: 0 Also in attendance: Kathy Brengosz, Fiscal Planning Specialist, City Clerk's Office Venu Gupta, Facilities Director, Department of Public Works Jennifer Meyer, Budget and Management Division 1. Review and approval of the minutes of the May 4, 2011 meeting. Minutes were approved as written. 2. Overview of the city's financial condition and credit access. Mr. Nicolini presented a PowerPoint (please see attachment "FINS PowerPoint Presentation 5-25-11" to Common Council File#101154). Mr. Nicolini said that the Budget and Management Division wanted to update the committee on the cash levy elements of the capital program and where the state stands in terms of levy limits. He also intends to discuss the five or six types of finance the city has available to it for capital. Ald. Dudzik asked how much flexibility the city has in how aggressively it pays down its General Obligation Bonding. Mr. Kammholz said that the city's debt structure is typically a fifteen year term with level principal payments. So the debt is being paid off very quickly. There is flexibility in how the city can pay, but the way the city's current strategy is seen as positive to the credit rating agencies. Eighty percent of the debt will be repaid over ten years. This contributes to the city's AA credit rating. He said that as long as the city maintains its AA credit rating, it will have access to City of Milwaukee Page 1 CAPITAL IMPROVEMENTS Meeting Minutes May 25, 2011 COMMITTEE capital and will enjoy fairly low interest rates. Ald. Dudzik asked the question regarding debt payment because most property owners are unaware of how aggressively the city pays down its debt. Mr. Kammholz said that the city does not want to see deferment of asset maintenance. If condition data reveals a need, the city can modify its debt structure for a special program. Mr. Nicolini mentioned that there are levy limits in the governor's budget. However, the city is able to levy beyond state budget limits based on costs for debt issued post-2005. Mr. Kammholz said that the state cannot legally impair debt that has been issued and pledged by full faith and credit repayment. A levy limit on that repayment would be an impairment of that pledge and would not be allowed. The current language for the exclusion dictates that all debt issued after 2005 is outside the levy limit. There is a provision for the pre-2005 debt which states that as the earlier debt is retired, the levy must be reduced by those amounts. Mr. Kammholz said that this is problematic. Mr. Schifalacqua asked what the debt limit is for the city, how it is set and what is the city's debt in relation to it. Mr. Kammholz said that the city's General Obligation debt limit is five percent of the city's equalized value. The city currently utilizes just over 60% of its debt limit. He said that if the value gets past the high 60s, the rating agencies will start noticing that the debt load is rising and it will affect the credit rating. Mr. Nicolini said that the city's debt limit was in the mid 50s, but increased with the bursting of the housing bubble. Mr. Schifalacqua asked if there is a limit on revenue bonds. Mr. Kammholz answered that the limits on revenue bonds are tied to the cash flow streams of the Enterprise Fund. He said that the credit is rated based on the fact that the city is issuing new debt and meeting the debt service coverage ratios. Mr. Schifalacqua asked how the city decides whether it will issue revenue bonds or General Obligation Bonds. Mr. Kammholz said that the city always wants the lowest cost to finance. The lowest cost is typically General Obligation Debt. The city issues General Obligation Debt for its Sewer Maintenance Fund. In addition to the GO debt, the city has sought out Clean Water Fund Loans, which is 1.5 to 2 percent cost to finance. With these loans, the city has reduced its costs for funding its capital needs. However, Mr. Kammholz said that the subsidy from the state for the Clean Water Fund Loans is decreasing due to a change in the state's proposed budget. Clean Water Fund loans are viewed as revenue debt, so they are outside the debt limit. Ald. Dudzik mentioned that the assessed value of city property will affect the debt limits. He said that since the assessed value will be increasing due to market rebounding and other factors, in the long run something that would negatively affect the city's assessed value would also keep up the use of the debt limit. Mr. Froh asked if the tax exempt property is taken into account when determining the city's equalized value on which the debt limit is based. Mr. Nicolini said that these properties are not taken into account, but he explained that there other charges imposed on those properties, such as the Sewerage Charge and the Stormwater charge. He said that some states have started using a Transportation Utility Fee which uses trip generation as reflected by land use and some frontage information to generate a fee applicable to all properties. This fee would result in an ability to reallocate the cost of the street program without adding to the residential burden. The city would need legislative authorization to use this fee because it is not covered in Chapter 66 of the city code that regulates special assessments because of the way costs are allocated. City of Milwaukee Page 2 CAPITAL IMPROVEMENTS Meeting Minutes May 25, 2011 COMMITTEE Mr. Nicolini said that an opinion on whether the city can use a Transportation Utility Fee can be requested from the City Attorney's office. 3. Brief review of capital finance tools available to the city. Mr. Nicolini said that on the property tax side the city has straight cash or levy-supported General Obligation Debt. On the revenue related side, there is General Obligation Debt supported by revenues such as the Sewer Maintenance Fund. The user charges can also be used as a direct cash source. There is also true Revenue Debt, which would require a revenue stream from a utility. The Redevelopment Authority of the City of Milwaukee debt can also be used through a moral obligation pledge facility. The local motor vehicle fee option and user charges for fleet equipment used for solid waste and snow and ice removal can be used. Mr. Nicolini also mentioned funds from special assessments. Mr. Schifalacqua asked whether the cash conversion policy for various infrastructure projects that are repeatable every year has been placed on hold and if it is still relevant. Mr. Nicolini said that it is still relevant as a consideration; however, the reason the city moved away from that policy is because the city was honoring it at the cost of very low capital improvement budgets. The city decided to focus on the level of borrowing as the key control instead. Mr. Nicolini said that it would be good to generate a larger cash component, but it is a matter of cost. Generating a larger cash component with this policy means digging more into the operating budget to achieve it. Mr. Schifalacqua asked if there will be a discussion of the overall capital program and what percentage should be cash and what percentage should be borrowing. Mr. Kammholz said that the Comptroller's office can do a presentation on the Debt Service Report in July and this can include a discussion about cash versus borrowing. 4. Discussion of the relationship between capital finance and budget priorities for the 2012 capital budget. Mr. Nicolini said that the budget office will be reviewing the current capital plan and the committee's capital budget recommendations with an eye towards opportunities for the city to increase the top priorities while trying to stay close to the 75 million dollar target. There will also be an examination of some opportunities for potential user charge financing to a somewhat larger extent. Mr. Nicolini mentioned two immediate issues for the 2012 capital budget; how the changes in policy at the state level are affecting bridge funding and what policy makers decide regarding the appropriate level of support for a private infrastructure program, such as for sewers. 5. Presentation from Springsted regarding the Sewer Maintenance Fund Rate Study. Individuals appearing: Joe Murray, Client Representative, Springsted Patty Kettles, Consultant, Springsted Nick Dragisich, Consultant, Springsted City of Milwaukee Page 3 CAPITAL IMPROVEMENTS Meeting Minutes May 25, 2011 COMMITTEE The Springsted representatives gave a PowerPoint presentation (please see the attachment "SMF Presentation 5-25-11" to Common Council File #101154). Mr. Kammholz asked if the borrowing for the Sewer Maintenance Fund results in General Obligation debt or revenue debt. Ms. Kettles said that it is both. Mr. Nicolini added that the entire Capital program has been funded out of the Sewer Maintenance Fund since 2005 or 2006. Mr. Kammholz said that there is direct debt, which is the Sewer Maintenance Fund debt, and the transfer from the Sewer Maintenance Fund into the Debt Service Fund to cover the outstanding General Obligation debt. Mr. Nicolini said that instead of using the tax levy to support the previously issued old sewer debt, the burden on the taxpayer is being relieved by using the Sewer Maintenance revenues for paying off the old debt. Mr. Nicolini said that originally, the Stormwater Maintenance Fund had only one revenue source, the local sewerage fee. In 2006, a Stormwater Management fee was added. The original five million dollars of cost was for leaf collection and street sweeping. In 2008 or 2009, a substantial amount was added to the General Fund transfer primarily for forestry programs. Ms. Kettles presented slides illustrating the current capital outlay and an increase of twenty percent. Mr. Nicolini said that the budget office has access to the modeling tool used for determining the capital outlay. He explained that if the committee members want to look at different alternatives, not just the current plan or a twenty percent increase, the model can be used to analyze different options. Ald. Dudzik said that he thought that Curb and Gutter Replacement was funded under the wheel tax. As part of the paving program, Mr. Nicolini said that the city could choose to fund the curb and gutter program through the Stormwater charge. This would allow the General Obligation Debt to be ued for other programs. He said that it is another way of getting more funding for conventional street work out of a tax funded budget for improvements. Ald. Bauman asked who decides what is properly covered by the Stormwater fee. Mr. Nicolini said that the City Attorney's office had been asked, and it was determined that it is appropriate to fund the Curb and Gutter program with the Stormwater fee. Mr. Kammholz said that the discussion of the three funding sources that are available, revenue bonds, General Obligation bonds and the wheel tax, is an important one. Mr. Kammholz said that cash as a funding source is important because there is no interest cost associated with it. He asked if, when looking at building reserves of at least fifty percent that are unrestricted, Springsted had looked at a scenario that had a least a portion of the fee not going to debt service but to front end PayGo cash for a portion of sewers. Mr. Nicolini said that the city already does this and that there is about 2.5 million dollars of cash in the capital program. Mr. Nicolini said that during the summer, the committee should be looking at what should be the targeted level of reserves, the recommendations of the flooding study task force and the replacement cycles of the regular relief and relay sewer program. Ald. Dudzik brought up the pilot program for the relining or repairing of private laterals as a method of flood prevention. He asked if the model created by Springsted could generate any data on the cost of the repair and relining of laterals on private property on a larger scale. Mr. Nicolini said that it could; the question if whether it would be a repair or complete replacement of laterals. He said that in the 2011 adopted budget, City of Milwaukee Page 4 CAPITAL IMPROVEMENTS Meeting Minutes May 25, 2011 COMMITTEE the city had anticipated 2.8 million dollars in grants from MMSD for a private property program and had set aside 2.3 million of the Sewer Fund capital with 400, 000 dollars for special assessment work. The special assessment portion would go toward backflow preventers. However, Mr. Mantes said that the 2.8 million has been reduced due to tax levy limits and it is now in the range of 1.5 million. He said that the computer model could certainly give different examples of what the rate would need to be with five million dollars available for lateral repair. 6. Set next agenda. The next meeting will be on June 15th at 9:00 a.m. Ms. Brengosz said that the Library will be giving its condition report. Meeting adjourned at 10:48 a.m. Staff Assistant Tobie Black This meeting can be viewed in its entirety through the City's Legislative Research Center at http://milwaukee.legistar.com/calendar. City of Milwaukee Page 5