City seeks reformed plan for balance between capital improvements and tax rate
Stevens Point Comptroller/Treasurer Cory Ladick urged the city to form a long-term capital projects plan at the Stevens Point Finance Committee meeting Monday, Aug. 8.
Ladick said it is important for Stevens Point to develop a structured plan for the future of city borrowing for capital projects – such as road repairs and rebuilds, infrastructure maintenance and asset costs.
“We’ve been working on a long-term capital analysis, we’ve had an idea for quite some time now that the overall capital budget we have may not be efficient,” said Ladick. “So, we’ve been working on inventorying all of our assets, looking at its useful life and then taking the total cost of the asset and divide it by its useful life. That gets you a yearly cost for that asset to establish what kind of a capital budget we really should have.
“For instance, let’s say you have a pickup truck, and it’s $24,000 and lasts for 10 years. You’d be looking at $2,400 a year as far as the amount of capital budget you’d need for that one asset,” he said.
“That was the analysis (approach) we took. I got all of the department heads involved, had them all submit what they have for assets and expected useful lives, and we came up with a pretty strong conclusion – I’m sure this isn’t too surprising – that we do need to invest a little bit more money in capital,” Ladick said.
The city has been working to consolidate assets, such as fleet vehicles, as well as developing better channels of communication to share resources.
“There are a lot of ways to affect those (cost) numbers, liquidating the used assets, consolidating, sharing equipment, getting equipment that has multiple uses so we can reduce our inventory of things,” said Stevens Point Mayor Mike Wiza. “The other thing is, once you have all of that taken care of, you still have everything else you have to do. Roads are a big one.”
City officials hope to bring down the annual costs of capital assets, but fat-trimming only goes so far. The city will always need to borrow for capital projects, especially for roads – which are aging faster than the city can repair/rebuild on its current debt schedule.
Under the city’s current financial structure for capital, $750,000 a year is typically taken out of the general fund (the city’s savings mostly through departments underspending their budgets) and up to $3.15 million in borrowing.
“Our departments really are pretty good at saving money and not spending their full budgets, which is very fortunate for us because it gives us that money that we can put back into capital. It’s something I remind them of, that when they’re able to hold their expenses in line and return that money to the city, it will eventually come back to the department in terms of capital,” Ladick said.
“$3.15 million is the annual amount of principal we pay off every year for debt,” he said. “We pay that off through property taxes, and that creates room to borrow up to this amount to finance future capital. Now, in the past few years, we’ve actually been borrowing less than that because we’ve been trying to pay down some debt.”
Prior to 2013, the city had a tendency to borrow more for capital than it was paying back, but in recent years the city shifted its spending structure to allow for debt repayment, Ladick said.
“So, our total capital budget we have available is $3.9 million. The big question, is this enough to maintain and replace our assets that we have, that we need to do business over the tong-term?” Ladick said. “Capital challenges are certainly unique, if you pay attention to the news you probably hear a thing or two about capital challenges at all levels of government.”
Ladick said Stevens Point is not immune to infrastructure and asset underfunding.
“Does Stevens Point also fall into that category? Do we also have a system that is underfunded? Well, here are a few signs that we may have a problem and really what spurred this analysis: First, our street utility reconstruction is currently on a 285-year replacement cycle. Utilities do last a long time, however, they don’t last 285 years,” Ladick said.
“In talking with the director of Public Works (Scott Schatschneider) and the director of Utilities (Joel Lemke), a more reasonable replacement cycle would be probably be about a 90-year cycle for total street/utility reconstruct,” Ladick said.
A 90-year cycle for a roadway would include a chip sealing 15 years after construction, resurfacing 15 years after chip sealing, then two more 15-year chip sealing and resurfacing cycles before a complete rebuild.
Utilities can usually last about 90 years under that roadway, which is good because the road would have to be torn up to get at them, Lemke said. Different factors play into the lifespan of utilities, but there are some engineering tricks to prolong their lives should they fall short of the road’s lifespan.
“There are two key take-away (points) from this: Our current capital budget is not sufficient for the long term, and we need to recognize every single capital asset going forward. Every asset costs us money, because at some point we need to replace it. So we want to minimize our assets,” said Ladick.
For example, the maintenance and upkeep for just the traffic signals in Stevens Point costs the city $130,000 year. So, the city needs to be very careful what it adds each year, because everything has a cost involved with it and, collectively, it all adds up, Ladick said.
Ladick said how the city goes about restructuring its long-term capital budgeting is really up to the people of Stevens Point and what they are willing to pay for infrastructure and the city’s capabilities of service.
The city could get more aggressive and expand its $3.15 million in annual borrowing capacity, which would raise taxes but also provide the people of Stevens Point with better roads, utilities and services, or it tightens it’s belt further, which would reduce the tax rate but force the city to neglect roads, utilities and possibly reduce its capability to provide services.
Thirdly, the city could find a better balance of the two, which may still raise taxes but also provide an optimal amount of capital improvements without spending money needlessly, Wiza said.
“Any changes need to go on ‘the spreadsheet’ so if we do add an asset, let’s say the fire department needs an additional fire truck – not just a replacement, but an additional fire truck in the fleet – well, that might be fine, but we really should put that in the spreadsheet, adjust the mill rate and say, ‘our capital budget now needs to be larger to pay for that,’” Ladick said.
Ladick said he’d like the Finance Committee, and ultimately the Common Council, to give some guidance to him on how to structure future budgets sometime in January.