Committee endorses ordinance related to general obligation bonds in Tumwater

The Tumwater Budget & Finance Committee endorsed an ordinance that allows city staff to advance work related to the issuance of general obligation bonds for various projects. 

At a meeting on Aug. 28, the committee reviewed the ordinance that authorizes staff to work with bond counsel, bond advisors and bond underwriters to plan for the sale of bonds to fund remodeling of a new city hall and North End Fire Station, as well as to buy mitigation land for habitat conservation.

The ordinance delegates the authority to approve the method of the sale and the final terms of the bonds. It also limits the aggregate cost of the bonds to $65 million. 

Finance Director Troy Niemeyer told the committee the figure is an upper limit. 

“We were advised by the bond experts to not put in the exact dollar amount of what we think we need to spend (and) not put in the exact interest as it is today because those things can change,” Niemeyer said. “We're still negotiating some of the contracts related to these things.” 

He added the ordinance does not grant complete authority to approve the bonds. 

“I want to be sure to make that clear that approving this ordinance does not give us carte blanche, carte blanche to just go and spend millions of dollars,” Niemeyer said. “This allows us to get the financing in place and be ready so that we can move when we get final approval from council.” 

Niemeyer said the ordinance would also provide flexibility.

“If we didn't have this delegation, we would have to convene the council at several key steps to get votes on various things,” he said.  

“I've heard some horror stories related to that, where they had to call a special meeting at 9 o'clock on a Friday night because they're ready to sell bonds, but they don't have final approval, and something changed. This delegation just gives us the authority, so we don't get in that kind of a situation.” 

The committee agreed to forward the ordinance to the city council, which will consider it for approval at a meeting on Sept. 15. 

Debt limit 

The committee also endorsed a policy update that would increase the city’s debt limit, matching it with state-mandated limits. 

Most of the policy update involves minor changes to language, while the biggest change deals with debt.

The update removes an entire section that details with how the city restricts different types of debts. The city currently caps its debts to half of state-mandated limits. 

The city limits general obligation debts to 0.75 percent of  assessed property values if the debt is going to be repaid by its budget. The state maximum is 1.5 percent 

If a debt were to be repaid by an excess tax levy, the debt would go to a vote and would need to be approved by 60 percent of voters. This kind of general obligation debt is limited to 0.5 percent of the city’s assessed property value, whereas the state limit is 1 percent. 

Altogether, the city' s total indebtedness to both types of debt is capped at 1.25 perent of its assessed property value, while the state limit is 2.5 percent. 

State law also grants cities an additional 2.5 percent limit for general obligation debt dedicated to parks and recreation projects, and a 2.5 percent limit for utility projects. The city currently caps both at 1.25 percent as well. 

Niemeyer said the limits are self-imposed restrictions that started in 2018. He added the state’s higher limits and mandatory credit rating reviews during bond issuances offer sufficient safeguards. 

“Just my opinion as the finance director, the state law limit does a pretty good job of letting us not go crazy,” Niemeyer said. 

“In addition to that, when we get bonds … we have to get a bond rating, basically a credit rating done where they dig through our finances and see what kind of financial shape we're in. And they're not going to loan us money if we don't demonstrate the ability to pay it back.” 

Other updates 

The update to the city’s financial policy also put into place an existing permit reserve fund and changes to allocations for utility taxes. 

Niemeyer said the city ahas a permit reserve fund, which is used for community development activities during economic downturns. Revenue from building permits feeds the fund. 

The new provision states building permits are only paid during the first year of construction, but requires staff to commit for inspections and other activities during the entire period of construction. If new construction activities decline due to the state of the economy, the reserve fund helps sustain the salaries of city staff so they can continue working. 

The update also details where utility taxes are allocated based on whether services are provided by a private company or the city. 

Currently, the city allocates all utility tax by placing 3.7 percent in the general fund, 1.5 percent to the general government capital facilities fund, and 0.8 percent to the transportation capital facilities fund. 

The updates increase the allocation to transportation capital facilities fund to 1.5 percent from 0.8 percent for utility taxes from private utilities. 

For utility tax collected from the city’s water, sewer, and stormwater system, 9 percent goes to general fund, while the general government and transportation capital funds each get 1.5 percent.

If needed, these numbers may be adjusted by the council as part of the budget process. The updates also put an explicit ban on using cryptocurrency to pay utility bills.