Rock Island City Council met April 9.
Here is the minutes provided by the Council:
Present: Mayor Mike Thoms, Alderman Stephen L. Tollenaer, Alderman Dylan Parker, Alderman Dave Geenen, Alderman Virgil J. Mayberry, and Alderman James Spurgetis
Alderman Joshua Schipp arrived at 5:51 p.m.
Absent: Alderman Ivory D. Clark
Staff: City Manager Randy Tweet, City Attorney Dave Morrison, City Clerk Judith Gilbert, and other City staff
4/9/2018 - Minutes
FINANCE: BOND RATING RETENTION / IMPROVEMENT AND DEBT REDUCTION / DEBT MANAGEMENT POLICIES
Finance Director Stephanie Masson gave a presentation on Bond Rating Retention / Improvement and Debt Reduction / Debt Management Policies. These were high priorities designated by City Council in their 2017 goal setting sessions.
Ms. Masson stated there are three major bond rating agencies: Moody's, Standard & Poor's (S&P) and Fitch. Moody's and Standard & Poor's are the primary bond rating agencies for government bonds. The purpose of the bond rating agencies is to assign credit ratings for issuers of debt after evaluating their credit worthiness. Ms. Masson said an agency can assign a rating at any time. Ratings affect the cost of borrowing, i.e., the interest rate and cost; and they also affect the marketability of bonds on the secondary market (bonds are available to be traded). When the credit rating is lower, purchasers of bonds expect a higher interest rate of return to compensate for the risk.
Ms. Masson reviewed the bond rating agencies credit scales and the difference between investment grade ratings and non-investment grade ratings which equate to junk bonds. The City of Rock Island has an A1 bond rating from Moody's assigned in June of 2017 and the rating was affirmed last fall when the City went to the bond market. Moody's also assigned a negative outlook to Rock Island's general obligation bonds. Outlooks can be positive or negative.
Ms. Masson next compared the City of Rock Island's credit rating with other local institutions. Scott County (Aa1) had the highest rating with Rock Island comparable to the Cities of Moline and Galesburg, Black Hawk College, and Rock Island County and above the City of East Moline (A2). The State of Illinois (Baa3) has the lowest investment grade credit rating with a negative outlook and just above junk bond status.
The City of Rock Island uses Moody's for its credit rating. When a municipality is going to the bond market, a credit analyst is assigned and the analyst along with a committee review a lot of information including budget, audit, media releases, things going on in the community (major employers), and what's going on with the county and the state. Ms. Masson reviewed the basic principles that make up the criteria for a bond rating: qualitative, focus on the long-term, consistency, level and predictability of cash flow, and a municipality's responses to reasonably
employers), and what's going on with the county and the state. Ms. Masson reviewed the basic principles that make up the criteria for a bond rating: qualitative, focus on the long-term, consistency, level and predictability of cash flow, and a municipality's responses to reasonably adverse scenarios. There is also a sector-specific analysis. Analysis of assets, debt, income, expenses, and financial history are also part of the committee review.
Ms. Masson provided excerpts from the City's bond rating. "Credit strengths were ample operating fund balance and liquidity; strong ability to raise revenue given the City's status as an Illinois (Baa3 negative) home rule community; and institutional stability provided by the Rock Island Arsenal and Augustana College." Excerpts from the City's credit challenges were "high debt and pension burden; elevated fixed costs could be a source of mounting operational pressure; and weak socioeconomic profile."
Alderman Mayberry asked about the institutional stability and the specific role in the analysis. Ms. Masson responded the bond rating agencies look at a municipality's place in the bigger region. Ms. Masson explained that on the last bond rating call, the City highlighted the Arsenal building new homes, more jobs in the area, and new contracts at John Deere. Alderman Spurgetis asked if Unity Point/Trinity Hospital was mentioned; Ms. Masson replied the hospital does receive a copy of the City's audit and they are highlighted as a major employer in the City as well as the investment they have made in their facility with the emergency room and heart care center.
Ms. Masson reviewed factors that could lead to an upgrade in the City's bond rating such as moderation of the City's debt and pension burden; material growth of the tax base; and improvement in socioeconomic indices. She also reviewed factors that could lead to a downgrade in the credit rating such as a contraction of the City's tax base or a weakening of the socioeconomic profile; continued growth in the City's debt and pension burden; and reduced operating fund balance or available liquidity. Ms. Masson encouraged Council to keep all of these factors in mind when making decisions that would impact the City strategically.
Ms. Masson next reviewed the City's historical debt and where the City is at today. She provided an eleven-year history of all of the City's debt (principal only) including governmental activities (general obligation bonds and lines of credit); and business type activities (debt which is paid by user fees). Debt is either general obligation bonds or IEPA loans for the water filtration facility and similar projects. General obligation bonds are paid with TIF revenues and gaming tax revenues. Ms. Masson showed a graph of the retirement schedule for the general obligation debt. There are a few years of level debt, but after 2022, the debt begins to decrease. Mayor Thoms asked why the debt is level for those few years instead of going down each year. Ms. Masson replied that the Watchtower debt (in 2016) had three years of principal payment added to the end of the schedule ("scoop and toss").
Ms. Masson reviewed the Government Finance Officers Association (GFOA) best practice on debt management. GFOA recommends adoption of debt management policies that address at least four components including debt limits, debt structuring practices, debt issuance practices, and debt management practices.
Ms. Masson stated the City's Financial Policies were contained in the annual budget document; the financial policies were last amended in November 2016. She provided excerpts related to City debt and borrowing. "Cash Flow Borrowing: The City of Rock Island has in past years issued tax anticipation warrants and used inter-fund borrowing to pay expenses incurred until the first property tax receipts were received in June. It is the goal of the City of Rock Island to maintain a sufficient cash balance in the General Fund to eliminate the need for internal or external cash flow borrowing." This means for meeting every day obligations. "Use of revenue from riverboat gambling: Revenues will be allocated for the following purposes based on priority decisions by City Council: (1) Capital improvements. (2) Economic development projects that produce jobs, increase tax revenue and/or enhance the quality of life. (3) As directed by Council, equipment purchases or service contracts in excess of $10,000." produce jobs, increase tax revenue and/or enhance the quality of life. (3) As directed by Council, equipment purchases or service contracts in excess of $10,000."
Another excerpt related to City debt and borrowing was reviewed by Ms. Masson. "Capital debt and management: Any capital project financed through the issuance of bonds shall be financed for a period not to exceed the expected useful life of the project. The City should keep the final maturity of general obligation bonds at or below twenty years. Total general obligation debt payable from property taxes should be limited to 2.0 percent of the market valuation of taxable property. The City will not use long-term debt for current operations. The City will maintain good communications with bond rating agencies about its financial condition. The City will follow a policy of full disclosure on every financial report and bond prospectus. The City will make all capital improvements in accordance with an adopted five-year capital improvement program. The plan will be updated annually. The City will use self-supporting debt whenever possible. The City will examine alternative financing vehicles for local improvements including the use of special service area financing. The City will strive to maintain an investment grade bond rating." Ms. Masson said a lot of the City's policies are part of GFOA best practices.
Ms. Masson provided a draft of proposed Debt Management Policies for the City. These policies incorporate GFOA best practices. They include a purpose, criteria for evaluating pay-as-you-go financing versus debt financing in funding capital improvements, debt issuance guidelines (conditions when issuing debt), use of professional services, competitive versus negotiated debt issuance, debt capacity guidelines for general obligation debt, overlapping debt with other public entities, and debt administration including financial disclosure and monitoring outstanding debt. The policies include analyzing the City's debt and reporting to Council. Since the City is home rule, there is no debt limit imposed.
Ms. Masson explained the next steps are to amend the City's Financial Policies with a reference to separate Debt Management Policies; and adopt Debt Management Policies.
Alderman Geenen said there should be a way of reporting back to the community, making the City's finances readable and transparent. Ms. Masson said she could have a dedicated page on the website with financial information. Alderman Spurgetis questioned the table of the City's debt which lists census figures that are seven years old. Ms. Masson explained that the census data is not updated every year and that the last census year figures are used until the census is updated every ten years. Alderman Parker asked if the City's financial policies are published online anywhere. Ms. Masson replied they are published in the budget document which is online and it will come up as an agenda item when doing a search. Alderman Parker requested a separate website page for the City's financial policies and information on the City's debt. Alderman Spurgetis asked for clarification about the graph on the debt retirement that it assumes no more general obligation debt; Ms. Masson said yes, that is correct.
Ms. Masson said there will be a report at the Council meeting in April or May on the pension debt. Alderman Mayberry asked if the state owes the City money. Ms. Masson replied "probably." Discussion continued on East Moline's situation.
COMMUNITY AND ECONOMIC DEVELOPMENT: DOWNTOWN COMMERCIAL DISTRICT
Community and Economic Development Director Chandler Poole announced the topic for his presentation would be the downtown commercial district and commercial development and availabilities. They divided the downtown in two sections, west and east, with 15th Street as a dividing line. The west side is more governmental activity and the east side is more commercial. Mr. Poole explained CED Development Program Manager Mark Sikes walked every street to get the information they will be presenting because when they pulled information off of the County records, it was not always accurate. Mr. Poole presented maps showing available space, distinguished by space listed with a real estate broker and vacant space with no listing. Mr. Poole said County records show 300 billion square feet of space in the downtown; Mr. Poole doubts that is accurate.
Mr. Poole said County records show 300 billion square feet of space in the downtown; Mr. Poole doubts that is accurate.
Mr. Poole said there are 21 properties listed for sale or lease in east downtown for a total of 251,000 square feet. The department will be working with brokers to get a true number of vacancies. There are eight unlisted properties representing 85,000 square feet. Lease rates range from $5-$13, but that includes triple net rates and gross rates. The average lease rate per square foot is $8.75 which Mr. Poole said is not bad compared to other communities. Mr. Poole also pointed out that while Mr. Sikes was walking every street, he was also making connections with businesses and finding out additional information. Mr. Poole also said they are now getting monthly updates from brokers. Prior to the current outreach, not much had been done before. Mr. Poole presented a listing of downtown properties with available space.
Mr. Poole next reviewed the available properties in the west downtown business district. There was only one property listed for sale with 4,000 square feet for sale for $155,000. There were eight unlisted properties for a total of 35,000 square feet. Mr. Sikes will be working on those vacancies.
Mr. Poole explained that by understanding what the City has, it will make it easier when they are talking to companies. Alderman Geenen had asked about comparisons to other cities; Mr. Poole said with the information they are gathering, they will be able to compare it to other communities. He said that they have a good starting point. Mr. Poole explained the threshold of the 10% vacancy rate. If the vacancy rate is above 10%, then it is a soft market; below 10% in the lower numbers, then it is a strong market where adding new space would make sense. Mr. Poole explained what shadow space is; technically it is leased space, but it is not in use. Eventually, they will get to a true vacancy rate.
Mayor Thoms asked if the information will be put on the website. Mr. Poole replied they are working with the Information Technology Department to create a module for commercial space; there is more tweaking to be done, but eventually it will be on the website and especially feature the City-owned sites. Mayor Thoms asked if the City will be marketing residential homes; Mr. Poole replied that will be happening in the future.
Alderman Spurgetis asked if they have similar information for the 11th Street corridor. Mr. Sikes replied there are at least seven industrial and commercial corridors and districts in the city. Mr. Poole said they started first with the downtown district; 11th Street will probably be next.
Mayor Thoms asked if the space was class A, B, or C; industrial or office space. Mr. Poole replied the Star Cres building is probably class B; the rest of the space is B or C. Alderman Parker asked if they had coordinated with Erik Reader of the Downtown Partnership. Mr. Sikes meets monthly with him.
Alderman Mayberry asked how many properties the City of Rock Island owns in the downtown. City Manager Randy Tweet said they will compile a list. Mr. Poole said there are some vacant lots. Alderman Mayberry asked if they had a plan for the vacant lots; Mr. Poole replied that will be a subject for a May study session. Mayor Thoms asked about communication with realtors. Mr Poole responded it has improved. He explained that the City is helping the realtors with promotion of their listings; it's about bringing in new companies.
The study session concluded at 6:11 p.m.
http://www.rigov.org/AgendaCenter/ViewFile/Minutes/_04092018-139
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