Mayor questions proposed financing for future projects

Major John Alberts questioned the City of Yukon’s financial advisers about the proposed bonds they’ve been presenting to finance future projects during the work session on Tuesday.

City manager Jim Crosby presented proposed capital projects for coming years during the Dec. 6 work session before the regularly-scheduled City Council meeting. The proposed projects would go through 2020 with funding costs totaling $13,123,500.

“These are projects that the Council have talked about and really obligated ourselves to a number of these projects,” Crosby said at the beginning of the Dec. 6 work session. “The question is how to pay for them.”

Chris Gander and Bill Strecker with BOK Financial Securities, visited the work sessions on Tuesday and Dec. 6 to discuss the best options for how to finance the projects.

“So basically what you’d be doing in the early years would just be paying interest and then as the principles start becoming due as things fall off,” Gander said during the Dec. 6 work session in regards to using debt issuances for the proposed projects.

Gander also gave estimates on how much debt the City of Yukon would have any given year with the bonds during the Dec. 6 session.

“You’re able to do this and really only have a negative effect to your cash flow and you funding other projects in the city with cash by $438,000 in your worst year,” Gander said. “At that point, your old debt starts falling off and you really start paying down your others.”

All of the debt issuances Gander discussed would be ten year issuances from the date when they’re anticipated to be issued to maintain the city’s borrowing history, he pointed out during the session.

“This is the way we think we can finance these projects,” Crosby said. “I think for this time and place and position we’re in, this is the best area to finance that.”

Alberts originally questioned if the delayed ten year issuances would affect the city’s credit or anything on Dec. 6, but Gander said it wouldn’t and that it’s common to do it this way.

Alberts said Tuesday he was concerned because he doesn’t understand all the numbers they’re presenting and wants to make sure him, and the rest of the Council, are being financially responsible and doing what is best for the City of Yukon and its citizens.

“We don’t understand what this is. I mean generally we have an idea of what you tell us it is. So what I assume is that you guys have done your due diligence and you have looked, and you’re recommending to us something that you think is a financially sound decision for the next [13] years,” Alberts said to Gander and Strecker during the session on Tuesday. “It’s our responsibility so we’re a little gun shy over what we’ve been through over the last year so I just want to make sure you guys can tell us, ‘ladies and gentlemen, we’ve looked.’ I assume this is the best scenario you’ve looked at. Have you looked at anything else?

“It seems practical. It seems like something we’ve seen before. And [Gander], I swear we’ve had a conversation before where you don’t backload these because that creates some issue. This will be the third time that I’ve asked you that and you say there’s not an issue with that. But maybe if you could just help us understand. I’m relying on you.”

Gander answered by saying that him and Strecker are Yukon’s financial advisers so they have a responsibility to do what is in the best interest in the city and have no vested interest to do anything other than that.

“We’re required by several regulatory agencies to make sure that everything we do is in the best interest for the city,” he added. “Yes, we’ve looked at other plans. Ultimately, this plan is not a master plan for everything you might want to do. This is a plan to finance the defined projects you had on that list and have the least impact to your financials that we could.”

“If this doesn’t include everything and this is what we can handle, then how are we going to handle the other projects that may come up that may be unexpected?” Alberts asked.

 Gander replied that city officials aren’t committing to all of these projects and bonds in the beginning, it is just a general plan to get all of these done. If an emergency were to happen or something else that needed to happen first then those projects would be financed instead.

“This is the best method we feel today is the best methods of financing these projects and moving forward,” Crosby added. “We’re not limited. We’ve got reserve money if we need it. We could come back with another financing plan. We’re not married to each of these bonds until you vote and approve them.”

Strecker added that you have to use some kind of assumptions and that’s what Gander has done on these projections.

“Whether this is the plan you want or not the plan you want, that’s for you to decide. But this in stark contrast to a prior absence of a plan,” said John Williams, Yukon’s bond counsel. “This methodology is very sound, in which you look at the projects you want to do and then it reflects how much it will cost to actually do those and service the debt. I applaud the methodology.”

Crosby said one of the benefits of this financing plan, the projects must be done with that money because they are voted on and approved to be designated to the specific projects. Officials cannot deviate from that unless in the case of an emergency.

“I just want to make sure we’re making good, sound decisions for No. 1, I think these projects need to be done, but there are other things that need to be done and if money is cheap and is going to get more expensive, are we going to be able to do other projects?” Alberts questioned. “I’m just asking for a full financial picture. Does this max us out?”

Strecker said no, but the rates are low right now and may go up later on so then the Council may want to reconsider and decide to refinance the projects in a different way.

“You’re not committing you’re going to do all these projects,” Strecker said. “You’re committing you’re going to do them as time goes by.”

Crosby said he can’t predict the future, but he thinks that if something were to happen, the City of Yukon has the capacity to deal with it.

“I personally believe this is the best avenue to get these projects done,” Crosby added. “I don’t want the city to go through what it has gone through, believe me. We’re not trying to be too conservative but we’re not trying to go crazy either.”

“That’s the thing, we need to be responsible but we can’t become so conservative that we’re not providing the services that are needed for the community and looking toward the growth. We need to be able to take advantage of opportunities,” Alberts said. “I don’t mean to dwell on it. My mouth is leaving in a year and a half and you’ll probably be happy about that, but we don’t understand this stuff. So when you say we’re here having a discussion, this is really a one-way discussion. What you tell us, I would say that we might know a single digit percentage of. That is how heavily we rely. We’re third graders here.”

Strecker said him and Gander are there with the expertise to say ‘here’s best case, worst case scenarios’ and that’s what they’re trying to do.

“And I think you’re doing a great job,” Alberts answered. “I just want to make sure that after—I just feel like the cart got a little bit ahead of the horse last year so talking to us is very, very important and I mean in a very elementary way. I apologize for going on and on, but I do not intend to spend the next year of my life the way I spent the last year of my life. We have got to have information and I’m not saying you guys didn’t provide it, but these are worthwhile project that need to be done, but there’s more. We just need to be diligent about it.”

Strecker said depending on if they vote to move forward with these projects and this financing plan, him and Gander would be happy to come back quarterly or semi-annually to say what the best next step is if the rates do go up dramatically. He also said they’d be happy to talk to the people of Yukon to help them understand this isn’t because of the city’s financial issues from last year, but this is business as usual.

These are only proposed projects and costs so none of which are set in stone. Although Crosby presented the proposed plans to City Council on Dec. 6 and Crosby, Gander and Strecker presented their ideas of the best way to fund them, there was nothing finalized or ready to bring to the Council to approve.

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