So far we’ve examined the contents of two pockets: Pocket #1, Enterprise Fund debt and Pocket #2, HURF and Transportation Bond debt. Their revenues come from specific sources; customer utility bills, State Shared revenue and a dedicated transportation sales tax. The uses of these monies are regulated and can only be used for utilities, streets and transportation projects.
Pocket #3 is different. The source of money that goes into this pocket is identified but the restrictions for the use of the money are petty general. In Pocket #3 is Glendale’s General Obligation (G.O.) Bond debt for this Fiscal Year of $22,729,785. This bond debt is 26% of this year’s total debt. The total overall G.O. Bond debt is $163,310,000.
G.O. bonds are direct and general obligations of the city. Glendale uses G.O. bonds to fund many large-scale projects in its Capital Improvement Program. It does NOT use G.O. bonds to pay for water, sewer, sanitation, landfill, many transportation related projects and professional sports-related facilities such as Jobing.com Arena and Camelback Ranch.
Capital Improvement projects are the infrastructure that all cities must have to provide essential, quality of life services to current and future residents, businesses and visitors. They also prevent the deterioration of the city’s existing infrastructure, and respond to anticipated future growth of the city. Capital Improvement projects can be almost anything as the list below demonstrates and this list is by no means complete:
- fire and police stations
- libraries, court facilities and office buildings
- parks, trails, open space, pools, recreation centers and other related facilities
- landscape beautification projects
- computer software and hardware systems other than personal computers and printers
- flood control drainage channels, storm drains and retention basins
Where does the money come from to pay G.O. bond debt? G.O. bonds are backed by “the full faith and credit” of the city. State statutes heavily regulate this form of municipal debt and require that secondary property tax revenue is restricted solely to paying General Obligation (G.O.) debt. G.O. bond issuance must be in compliance with the Arizona Constitutional debt limitation for G.O. bonded indebtedness to 6% or 20% of a city’s total secondary assessed valuation. G.O. projects in the 20% category are:
- Water, sewer, storm sewers (flood control facilities) and artificial light when controlled by the municipality
- Open space preserves, parks, playgrounds and recreational facilities
- Public safety, law enforcement, fire and emergency services facilities
- Streets and transportation facilities
G.O. projects in the 6% category are:
- Economic development
- Historic preservation and cultural facilities
- General government facilities
The list is endless in terms of city infrastructure paid for by G.O. bonds. Here are just a few:
- Bethany Home Outfall Channel
- Foothills Library
- Relocation of Fire Station 151
- Foothills Recreation & Aquatic Center
- Field Operations Complex
- Adult Center Facility
A Capital Improvement project must fit into either the 6% or 20% category. Note that these categories are very broad. Typically city staff will offer city council a list of CIP projects that they deem necessary. It is at this point that the process can, and often does become, subjective and political. City councils can move a lower priority project to the top of the CIP list and bump others down — often resulting in oblivion and extinction for the bumped project.
An illustrative case in point: In 2004 a majority of city council (Mayor Scruggs, Councilmembers Eggleston, Frate and Goulette) approved immediate construction funding for the Foothills Recreation & Aquatic Center. Suddenly it became #1 on the CIP project list that year. As a result the facility became fully funded for construction and opened in 2006.
Another example was that in 2006 the same majority of council stripped the CIP Western Branch Library project of $6 million dollars and diverted those funds to pay a portion of the construction funding for the Regional Public Safety & Training Facility. They made the training facility a priority that year and by removing designated funding for the west library relegated it to oblivion. To this day the library has never been built. These are examples of purely politically driven decisions.
We know where the money comes from for G.O. bond debt. It comes from secondary property tax. The only restriction on issuing G.O. bond debt for CIP projects is that they must fit into either the 6% category or the 20% category. But those categories are merely descriptive. What should be of concern is that CIP project movement up or down on the list by city council is often highly subjective and politically motivated.
At least there is a restriction on the amount of debt that can be issued for G.O. bonds as it is dependent on a specific formula of 6% or 20% of a city’s assessed secondary property valuation. The uses of G.O. bond revenue and the debt it creates has proven to be murky because council makes the final, and often political, decision as to what is funded.
The next blog will tackle Pocket #4. If you consider the use of G.O. bond revenue to be confusing and cloudy, just wait until the discussion of Municipal Property Corporation (MPC) debt.
© Joyce Clark,
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