Financial Advisor Mike Bubany used a software program to demonstrate various financial outcomes for the city of Preston at Preston City Council’s January 21 meeting. He plugged in different capital expenditures over a period of years and the affect they could have on the city’s tax rate, levy, and utility rates. Councilman David Collett was absent. No one from the public attended the meeting.
Bubany was pleased to address a joint meeting of city staff, council members, and a member of the utility commission, Ron Schroeder. The development and updating of the Capital Financing Plan can affect city budgets, tax rates, and utility rates.
A 2021 street project is being considered. The project will be limited by what is “affordable.” Possible future projects like a wastewater treatment project, electric substation and meter replacement, or a community center were plugged in with estimated costs adjusted by inflation.
In each case the revenue source that will pay for a project was considered: utility rates, taxes, or specific funds that could be used to make payments.
Bubany noted that tax rate growth can occur due to increased valuations, not necessarily only due to new homes or businesses. Bubany said he normally figures home prices to be inflated 3% per year. For 2020, however, the county raised valuations in Preston 9%.
Bubany pointed to what he calls a “new normal,” which is the addition of significant new spending causing a bump in the tax levy, rather than a smaller, smoother year to year increase. The “new normal” recognizes an accelerated cost, after which it will smooth out. Preston’s debt per capita is currently at a moderate level.
At this point a plan is being developed. Bubany suggested that the city’s infrastructure, in his opinion, is more important than a community center. Councilman Robert Maust commented that some of the streets are 50 years old and the sewer and water infrastructure beneath them is even older.
Bubany said all projects show a potential for a tax increase. He advised the city to get in and out of debt (pay off the debt), so you can do the next project. Councilman Robert Maust said he was happy with the street project they did five years ago. City Administrator Joe Hoffman agreed; costs are escalating, project costs continually increase. Maust added that we will run out of money before we run out of projects.
Bubany asked if the wastewater project could be held off until 2029. Hoffman said the sewer plant was built around 1965 and it was updated around 1986. The current plant does not have redundant systems. He was not concerned about its capacity to handle city growth, insisting the technology will age out before its capacity. Bubany said it may be beneficial to gradually raise utility rates over a few years to fund the project later.
Mayor Kurt Reicks suggested we do what can be feasibly done with $4 million for a 2021 street project. Maust stated that $4 million is all we can afford. Bubany stated “people will feel this, no doubt about it.” He encouraged the council to discipline themselves to do maintenance on the newer streets to extend their life.
There seemed to be a consensus that the 2021 street project should be limited to about $4 million. There was some discussion as to whether it would be better to finance it over 10 or 15 years. Maust insisted interest is cheap compared to inflation. Bubany said the sewer and water infrastructure underneath the streets will last a long time and could be financed over 20 years and the streets could be financed over 10 years.
Hoffman suggested the decision as to how long to finance the project could be decided at a later date. Another street reconstruction project after a 2021 project will not likely occur until 2027 or later.
Jim Bakken, public works, said it has been frustrating; bids have been coming back higher than estimates, which limit the amount of work that can be done.
City council meetings next month will be held on February 3 and 18.
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