Unanimous vote needed in order to use bond proceeds for reconstruction
At the April 16 Wyoming City Council meeting, members met to consider approving a five-year street reconstruction plan, but members could not come to an agreement about financing options in order to do so. A decision was tabled until the May 7 council meeting after a public hearing about the matter.
Most agree Wyoming’s city streets have needed repairs for a long time. While a pavement management plan has been in place about four years, there has been no funding to move ahead with systematic road repairs.
The public works department monitors the condition of the city’s streets and has developed a priority list of those which need the most attention. Mostly this has been in the form of trying to stay even, through repeated stop-gap pothole repair.
Public Works Director Jason Windingstad confirmed so far in 2013 the department has used about 35 tons of asphalt patch.
“We keep hitting the same holes over and over,” he said.
Some potholes will have been replaced five or six times this year. Because of the weather this winter, the potholes are getting worse. The asphalt costs $70 a ton now. Windingstad anticipates the city using about 100 tons in 2013.
Now seems to be the time to make the move, because a financial mechanism is in place to finance a lot of the work over a period of time. The city has never adopted a street reconstruction plan. Administrator Craig Mattson says the city has no outstanding debt for street reconstruction bonds.
At the meeting, engineer Mark Erichson outlined some of the financing options for the council. The proposal is to partially finance the street repairs funded by street reconstruction plan bonds. In order to do so, the council must approve any street reconstruction plan by a unanimous vote of the council present at the meeting. He referenced Minnesota Statutes, Section 475.58, Subdivision 3b.
For some past city street projects, the city has used Chapter 429 bonds for specially assessed projects. By these regulations, property owners are assessed at least 20 percent of the project cost, with the rationale that the properties benefit by increase in value. Assessment charges are born by the city, according to Craig Mattson.
Erichson proposed an alternative; bonding for the work through street reconstruction bonds. He writes “the city can obtain bonds that are issued under a five-year street reconstruction plan.” Five years is the shortest term possible. This is allowed without an election, if there is unanimous approval of the street reconstruction plan.
Erichson told the meeting that the plan is to bring streets up to minimum standards; re-grinding of what is on the surface now with aggregate base, then re-pave with four inches of asphalt.
“A very good product,” he concluded.
Mayor Eric Peterson explained that currently street improvements are assessed 100 percent to property owners, based on the theory that the improvements add value to the property.
He has used an example from Shoreview to support establishment of a street reconstruction fund. The program began in 1985 with unspent budgeted funds. It has grown, but so has the population. The financial impact to individual households in about the same or even less than originally, because of the increase in population and in businesses drawn to the city.
In Wyoming the current tax structure has built in $500,000 dedicated to street reconstruction, so there would be no assessments and no additional taxes assessed to proceed with the bonding for a street reconstruction.
In December 2011, the council decided against including an additional $500,000 to the 2012 levy as a way to begin street repair. Public pressure at council meetings was against it. But the Street Reconstruction Fund was established with a transfer from the Streets Capital Improvement Fund and some balance reserves. This $500,000 was designated as a nucleus for a future street replacement fund.
In December 2012, the City Council added $500,000 to the 2013 levy to fund bond payments to begin street reconstruction projects. Mattson pointed to a corresponding reduction in the 2013 public works budget for repairs, as a “diversion to street reconstruction;” changing focus to replacement rather than continued heavy repairs.
This is the first year since the merger that all city residents pay the same tax rate. If a street reconstruction plan is accepted, sale of bonds approved, work could begin systematically with no additional increase in property taxes other than those which might be tied to inflation.
Peterson’s position is that “assessments can be crippling” to homeowners. The projects would replace essentially what is on the streets now with no assessments. He continued that “nothing has been replaced in 40 years.” He added that they are not deductible.
Linda Yeager earlier had proposed assessments in an 80-20 split, with the city picking up most of the cost. She said in her campaign for office last fall that people wanted street repairs and were willing to pay for them. However, since then the SRF has been established. “Because you can (bond) doesn’t mean you should,” she said.
She changed her position somewhat thinking it would be more responsible for the city to repair streets on a pay-as-you-go basis. Her reasoning is to minimize debt for the city. Another concern is that it would open the issue to a reverse referendum, a vote to defeat the bonding action. Finally, businesses would be hit hard. In addition, those on county and state roads would be taxed to support the city’s streets. She pointed out that Shoreview’s street replacement fund has increased above what it was originally.
Several residents spoke in favor of a bonding plan. Jerry Owens pointed out that the businesses generate more traffic in and out. Another said “get projects done and move on. Gets the town looking sharp and it will benefit everyone.” A third individual added, “Borrow the money at a time when the rates are low.”
Contacted after the meeting, Peterson provided some additional details. There is $500,000 in the SRF now, 2013 taxes will add the same amount, half in June and half in December. If bonds are sold in 2013, projects can begin with no bond payment for a year.
Peterson would like to avoid assessing for street work. He had asked Erichson about the assessments on a section of Greenway Avenue completed about six years ago. The rough estimate was $10,000 per property, which has added about $119 a month to property owners’ payments over 10 years.
There are three choices to finance street repairs. If the financed by assessments, the split is usually 80 percent city, 20 percent for the residents whose homes are on the street. A pay-as-you-go plan that would use money coming into the street reconstruction fund would take longer to complete street projects because they would be planned within the limit of the cash available in one year.
A bonding plan beginning with $500,000 allows for estimated 4-percent annual inflation. The $500,000 of the levy dedicated to streets is to insure that there is enough money to cover the annual payment on bonds. With a 4-percent inflation built in, after bond payment, the cumulative balance in the SRF would increase to a point where some projects could be completed from cash on hand.
In an earlier street feasibility study Erichson estimated about a $2.6 million bond sale to be paid back over 10 years. This would be about $300,000 annual payment, at an estimated 3-percent interest. Mattson confirmed the estimated payments.
Peterson had some year-by-year cost comparisons for pay-as-you-go and bonding for the repair. One important factor which increases cost is the mobilization of heavy equipment. More work can be done from one location which results in a better the deal on the cost-per-mile.
He limited his example to the streets in first-phase street and utility improvements; about 3.72 total miles. These are 266th St., 267th St., 268th St., 269th St., 270th St., Railroad Blvd., Felton Ave., Fenwick Ave., Finley Ave., Flintwood Ave., Flintwood Cir., Forli Ave., Foxboro Ave., Foxboro Ct., and Freisland Ave.
Bonding for the project would allow the work on all these streets to be completed in the first year. Possibly other streets (261st and Galen) could be completed as well. Otherwise the program would be drawn out much longer, at greater cost.
Using bonding, these streets would all be included in the 2013 project, with the first bond payment coming in 2014. The amount remaining in the SRF after the first bond payment would be about $220,000.
It would take more time to complete projects on a pay-as-you-go plan, because specific projects would have to fit into the $500,000 available. There are overall increases in the cost of projects, because of mobilization costs. In this plan, only a segment of Railroad Avenue would be completed in 2013. The SRF balance would be about $5,700.
In addition, Peterson had projected difference in the total cost over 10 years for the same projects by the two financing methods. By pay-as-you-go the total is $3,278,500.68. For the same projects, bonding for the work would cost the city $2,964,608.40.
The bonding plan also includes future projects across I-35. Infrastructure improvements need to be done as part of the street project. Part of the reason this area is farther in the future is because there are associated projects such as sewer main improvements and the installation of storm water mains.
Bonding is for street repairs. Money to pay for the sewer main upgrades and lift stations, would come from sewer and water funds. Residents are also paying an annual $8 storm water utility fee. In order to install storm water mains, the city needs to accumulate funds.
Wyoming residents are encouraged to attend a public hearing to learn more about the proposed Wyoming Street Reconstruction Plan. The meeting is scheduled for 7 p.m., Tuesday, May 7, in the city’s Community Room. Council members approved the action by a 4-0 vote. Councilman Steve Zerwas was not in attendance.