Ray Gronberg presents an update in this morning's Herald-Sun about what the eventual cost could be of Monday night's decision by Council to lower the fund reserve savings this year in order to meet Bill Bell's insisted 54 cent maximum property tax rate, assuming the assurances from four Council members that the city's AAA borrower rating will be preserved turn out to be overly optimistic:
Hypothetically, if rating agencies reduce Durham's AAA credit grade to AA, a future $50 million issue of "certificates of participation" would likely cost the city an extra $3 million in debt-service payments, analysts from Public Financial Management Inc. said.
That assumes the city also opts to spend $1 million to buy credit insurance for the issue, something it doesn't have to do now, the analysts said in a June 10 letter to Interim Finance Director Keith Hermann....
Council guidelines call for the city to keep an amount equal to at least 12 percent of current appropriations in the bank to meet cash-flow demands and provide a reserve for emergencies. Monday's council vote authorized administrators to lower the reserve to 11.05 percent of appropriations.
The city's figures suggest it closed fiscal 2006-07 last summer with a $20.2 million reserve, or 12.9 percent of appropriations.
Still unclear in the wake of Monday night's divisive meeting: just why Bell pushed so hard to fixate on this number, and what brought first-year Council member Farad Ali over to the mayor's side.
Durham Committee on the Affairs of Black People political chair Lavonia Allison was prominently present in the audience Monday night, and strolled through the lobby with the mayor and mayor pro tem Cora Cole-McFadden after the session; one reasonable speculation over this year's line in the sand could be pressure brought to bear from the notoriously tax-conscious DCABP to hold the line on property tax increases.
No matter what the decisive factors were, expect to see more watchful eyes than usual on the City's tax collections and financial health this year -- minimally from the finance staff, and potentially from Durham's rating agencies.
I just don't understand the rationale behind this decision. The right answer was to only increase spending as much as they increased revenue. It's unfathomable to me that they could not have found a way to have a smaller increase in spending. Unfortunately, our citizens let them get away with this because there is no outrage over large spending increases. I can only hope there will be outrage now that they've put our bond rating in jeopardy, but I doubt it.
Posted by: Joshua Allen | June 19, 2008 at 06:37 PM