As part of ongoing efforts to thoroughly understand and mitigate the impacts of future projects within the City of Rushford, the city council met with financial consultant Mike Bubany, of David Drown Associates, for a special meeting on December 20. Bubany’s computer modeling provided some clear parameters for projects, including the 2022 Highway 30 reconstruction, a Minnesota Department of Transportation-led undertaking. Additional projects for review included two generic, unnamed future projects, as well as both a sewer and water project.
“Looking at impacts on homes, we always say, we’ll adjust the value. I think we’ve been shortchanging that value increase,” noted Bubany. The tax information from several parcels were randomly chosen to highlight tax values and projections, which were laid out through 2035. The average market value inflation rate that had been used previously for planning was 3%, which wasn’t keeping pace. Bubany initially indicated a 7% increase was the historical average, but in the long term, it was a value increase that wouldn’t be sustained. The council opted to use 5% as the value. Bubany noted this was, “reasonable and intellectually honest for the taxpayers.”
Looking at the modeling and how operational expenses play a role, it was suggested the city continue efforts to keep operational cost increases to 3% or less. “Operational spending is increasing at the same rate as your tax base. You’ve actually increased a little better than that,” added Bubany. He also referenced the Capital Outlay Fund, where the city typically sets $270,000 aside annually, expecting to spend $250,000 of it on projects and needs. With the last two years seeing less than typical spending, Bubany felt the city would be way off that figure for end-of-year finals. The plan is to continue setting aside the funds each year, providing flexibility for any upcoming projects.
The biggest project on the horizon for the city is the 2022 Highway 30 Street & Utility Improvement Project. The state has been planning the reconstruction of the street for some time and the city will be taking advantage of disturbed roadways to update outdated sewer and water utility services. February project bid opening is planned with construction to begin in May when road bans are off. MnDOT requires the city to pay their share upfront, due at the time bids are awarded. General obligation (GO) bonds will be secured by the city for project funding. Landowner assessments, and funding from the city’s Sewer and Water Funds are also anticipated. At this time, the city is planning on a 10-year term for the GO bond. Bubany noted there are options for a longer term or differing terms for the street and utility portions, but cautioned against it if possible. “Generally speaking, I want you in and out of debt as quickly as possible. We can do it though for affordability,” he said.
Adding this project to the city’s current debt load has already been planned and will not push the city’s self-imposed debt threshold of $6,000 per capita over its limit. Looking at projections with project fluctuations indicates the rate will keep relatively flat to decreasing.
Two unnamed projects, of $1.5 million and $2.5 million (estimated amounts for planning purposes only), were also entered in the modeling, to ensure the city is prepared. “The idea is it gives you a number that keeps all the graphs where you want them,” explained Bubany. “If the engineers suggest a project you can say, ‘Yes, we can afford it,’ or, ‘No, we can’t.’”
Also included in the modeling were hypothetical $1 million projects in both the sewer and water utilities. Both funds are currently performing very well. “We do have things to add though, so don’t get too excited,” stressed Bubany. Rushford currently has one of the lowest tax and sewer rates for a city of its size, but high water rates.
“The sewer rate will eventually dip if the city continues to increase operational costs with no rate increases.” A hypothetical rate increase of 1.5% every year, beginning in 2023, would keep the adjustment small and largely create only minor impacts to users. However, Bubany stated the city can monitor actual fund performance to see if a rate increase will actually be needed at that time.
“In the short term, if we don’t get too analytical here, we don’t have to do anything,” added Bubany. “All in all, Rushford continues to appear financially sound with a good grasp on upcoming projects. If unforeseen events occur, such as Local Government Aid cuts or a financial windfall, we can always update and relook at the model and adjust accordingly,” he added in his highlights.
The next regularly scheduled council meeting is Monday, December 27, at 6:30 p.m., at city hall. It is open to the public.
Leave a Reply