City debuts new, leaner Capital Improvements Program

The city has debuted its new, leaner, Capital Improvements Program (CIP), successfully trimming $270 million from its wish-list of infrastructure and development projects.  The move is the first of many new initiatives outlined in the city’s new strategic plan, which we discussed in some detail here a few weeks back.  

The trimming of the city’s previous, plus-sized CIP is seen as a crucial one for city administration, which has been busy re-financing prior debt and preparing to float a $20m bond referendum on November's ballot, which would pay to re-pave the last of the city’s streets still rated as being in poor condition.

The previous year's CIP, which weighed in at $1.2 billion, was noted as the ratings driver in the city’s recent AA+ rating of the city's limited obligation bonds by Fitch, which is one step below the highest rating of AAA.  

Rationale for the AA+ rating centered on Durham’s low unemployment, strong financial management, and broad tax base, but growing capital needs were noted to pressure the city’s future financial resources (it's worth noting that a AA+ bond rating for LO bonds is fairly typical; the city still holds a AAA rating on voter-approved general obligation bonds).

The Capital Improvements Program is the city’s principal planning tool for long-range urban growth and development.  The CIP consists of projects with a cost of at least $100,000 and a useful life of at least a decade.   As in previous years, items are added to the CIP when requested by various city departments during an annual solicitation period.  The proposed projects are vetted by a Scoring Team, a CIP Advisory Committee composed of city staff, and a Citizen Capital Improvement Panel.

While each group is charged with different responsibilities, they all consider a set of funding priorities including items such as public health, safety, economic development, service area, equitable distribution, and others.  A new priority this year was the removal of deferred maintenance projects, which will be paid in the future with a deferred maintenance fund that was introduced in this year’s budget.

Input from all three groups was submitted to the City Manager for final assembly, with City Council adopting the plan in late June.  The result of the latest CIP development process was an important milestone in the city's attempts to reconcile a long list of funding needs with a short list of expendable revenue.

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The trimming of Durham’s CIP has been seen as a major priority in recent years, mostly as a result of the city’s self-imposed debt service cap of 15%, which means that no more than 15% of Durham's annual budget may go toward debt service.  If this year’s proposed $20 million in street repaving bonds are issued, Durham will be at a  14.27% debt ratio in 2012, with only $25.3 million remaining debt capacity. 

It is worth noting, however, that many previously issued bonds are scheduled for repayment by 2016, yielding $200m in additional debt capacity over the next five years.  The city’s debt capacity will remain a fraction of the current 950-million-dollar CIP, however, as city administration intends to remain under a 15% debt ratio in an effort to retain its AAA and AA+ credit ratings for future debt issues.

New this year to the CIP is the category of “requested but unfunded” projects, which comprises $100.3 million in infrastructure proposals (this total is not included in the $950m figure).  Included in this list are items like the Neighborhood Streetscapes Fund and the Southern Durham Recreation Center. 

As noted in the introduction to this year’s CIP, these items are not a current city funding priority, but could serve as the basis for future bond referenda.  

Some items were entirely removed from the CIP, including: 

• several park upgrades
• some fire station upgrades
• street lighting on MLK Parkway, and 
• a city-wide facilities upgrade, among other projects.

Of note, however, is that all but one drinking water, stormwater, and wastewater projects were retained, an indicator of both our previously poorly-maintained infrastructure and impending rules impacting our watershed.

The city’s new CIP is one effort in a greater move to rationalize the city’s finances.  It is important to mention that two years ago, at the start of Tom Bonfield’s term as City Manager, the city had no excess debt capacity.  

This was alleviated by the re-financing of existing debt at fire-sale interest rate by Finance Director David Boyd, one of Bonfield’s first director-level hires.  The new CIP, however, still has a large gap between needs and means.  

In the next several years, citizens will watch how Bonfield and colleagues implement the needed-yet-still-unfunded portions of the CIP, which currently sum to $540 million of the $950 million total.

Comments

[Todd Patton]

It is good to see the city moving toward a reality-based CIP, rather than just a wish list, but with a price tag approaching a billion dollars, there is still a lot of wishing going on (or some extremely long term planning). Maybe it should be renamed the 2035 CIP.

On the $20 million street bond scheduled for November, I hope the city will come up with a list of the streets to be improved. It would help turnout if residents know that their crumbling street is gonna get fixed if the bond passes.