Debt Load is Substantial…But!

After Monday night’s audit, I’ve fielded a number of questions about the city’s debt.  And it’s been fairly easy to discuss because as a council member (and your Mayor), debt discussions have been happening in our city for over a year – long before the audit confirmed our concerns about issues such as the golf course.

Here are a few facts and comments I have on the debt issue and some clarifications that might help you understand more of what that debt load is and what it means to you as a citizen.

As of today, the city has a debt load of approximately $14.27 million (that’s the principal balance today).  That number comes from the debt schedules for the six (6) debts currently being paid by the city.  This debt load does NOT include any Water/Wastewater projects because that debt is covered and paid for by water/sewer collections.

The first instinct (mine included) is “WOW – that’s a lot of debt!”  Well, it is…but. (There always seems to be a “but” in politics).  Of that $14.27 million debt, $10.18 million is supported (and currently being paid on time) by sales tax revenues…voter-approved sales tax revenues.  A big chuck of that (approximately $8 million or 80%) is for recent voter-approved projects like the Civic Center, Senior Center, South Street Bridge, and the Howard Bush Drive Extension.  As of now, those projects ARE fully supported by the sales taxes being collected and are NOT a draw on the city’s general fund.  (Let’s ignore for a moment that the projects had overruns and part of the street projects were never completed –that’s a separate and important discussion, but outside the scope of looking at the debt load today.)

To cut to the chase, $10 million of our debt is current financed by sales taxes.  As long as sales taxes remain at the levels they are, we’re good on that portion of the debt.

That leaves us with just over $4 million of debt that is the real headache – broken down, it is $3.4 million for the golf course and $650K for the airport.  This debt is (in a perfect world) supported by fees from things like hangar rent and golf course fees.  It’s when that perfect world becomes not so perfect (and that’s where we are today) that issues arise. 

It’s no secret that golf revenues are down.  It’s no secret that the golf course has NEVER covered its full load of debt since adding 9 holes of play in the early 2000’s.  It’s no secret that for the past decade or so, our general fund has spent funds it could otherwise use elsewhere (including for police and fire) to make those payments!  Combine that with a financial crisis caused by the 2008-2009 fund “borrowing” that occurred under the previous administration and we’re in a really tough spot.

The good news is that we’re really only having to focus on $4 million of debt right now – not the entire $14 million.  The good news is overall sales tax revenues have rebounded in the past few months and are slightly ahead of last year’s collections.  The bad news is we’ve cut some essential services and cut pay and staffing to ensure we can keep paying on that $4 million debt.

In the long run, cuts in pay and services cannot continue.  Our city employees do a great job.  They deserve a fair wage for a day’s work.  Our staffing in police MUST come back up.  Our fireman MUST stay on the job after federal assistance runs out in 2013.  Streets must be better maintained.  Parks must be mowed.  Equipment and facilities must be maintained.  Worn our equipment must be replaced.  It all costs money…money that we currently don’t have but will NEED to keep our city functioning years into the future.

I hope these comments have been helpful.  I could spend the next hour or more laying out more detail, but that’s for another day and another post.  Until then, know that your city council is working hard to find solutions to these issues.  Know that the past mismanagement is no longer happening in our city.  We’ll never be perfect (no one is) and it’s easy to criticize when mistakes happen, but your city is back to being run like a city should be run – open and honest communication – proper council oversight – decisions based on fact and the overall good of ALL of Neosho.

It’s an honor to serve.  I love our town.  I hope you agree we’re finally starting to head in the right direction.

Debt Concerns “No worry” With China

Despite dire predictions of a global market crash this morning due to the lack of an agreement on the US debt limit, China is taking a much more positive view of things.

Xia Bin, a member of the central bank’s monetary policy committee was quoted as saying "Don't worry too much about it. The United States will have to issue more debt and issue more currency".  Xia went on to say that the debt talks had gained too much media attention.

Currently, the US debt ceiling is capped at $14.3 trillion.  China is believed to hold 70% of its reserves in US dollar assets. 

As of 1:30pm CDT, the DOW was off just under 50 points.  The NASDAQ was down under 4 points.  It appears the concerns were very-much overblown based on the market’s trading today.

China GDP Growth Rate Continues Strong Pace

From ChinaDaily

But report notes inflation, property bubble and credit quality problems

WASHINGTON - China will continue to drive global economic development with an estimated growth rate of 9.6 percent this year, despite signs of an economic slowdown, the International Monetary Fund (IMF) said in a report issued on Wednesday.

China, however, still faces a number of risks, such as high inflation, a precarious property bubble and a decline in credit quality due to an excessive amount of bank loans, according to the annual IMF report on China.

A key gauge of manufacturing activity showed that the factory sector shrank for the first time in a year in July.

The HSBC Manufacturing Purchasing Managers' Index fell below 50 for the first time since July 2010. Analysts said it signaled a slowdown in growth as a result of tightened monetary policy. When the index is above 50 it signals expansion, when beneath it, contraction.

"Industrial growth is expected to decelerate in the coming months as tightening measures continue to filter through," said Qu Hongbin, chief economist for China and co-head of Asian Economic Research at HSBC.

China's economy grew 9.5 percent in the second quarter, exceeding expectations and easing concerns of a hard landing amid tight monetary policies to curb inflation.

The better-than-expected economic data for the second quarter gave some economists grounds for optimism over the prospects for China's economic growth.

"We raised our 2011 GDP growth forecast to 9.5 percent from 9.4 percent," Sun Chi, an economist at Nomura Securities, said.

According to the IMF, China has increased its sway over the global economy and holds "an important stake for the world in its stability".

The fund's executive board reached these conclusions after some of its members visited China between May 23 and June 9 to collect economic and financial information and hold discussions with officials, such as Vice-Premier Wang Qishan, Minister of Finance Xie Xuren and People's Bank of China Governor Zhou Xiaochuan.

The visit focused on China's macroeconomic outlook, the potential for a property bubble and factors endangering the banking system, said Nigel Chalk, senior adviser at the fund's Asia and Pacific Department, who led the IMF visit to China. He spoke via a conference call before the fund released the report on China.

Chalk said his team noted that a great deal of progress had been made in China in changing the GDP-based growth model while expanding the social safety net.

Inflation will start to "move to a downward trend" toward the end of the year, Chalk said.

He Jianxiong, IMF executive director for China, and Zhang Zhengxin, senior adviser to the executive director, said China's key challenges are to "balance the need for containing inflation, sustaining strong growth, and accelerating the transformation of the growth model.

"The task is complicated by the difficult external environment," He and Zhang said in a statement.

Both He and Zhang took issue with IMF assessments that the yuan is undervalued.

Both argued that the IMF report is based on "the assumption of unchanged policies and a constant exchange rate" and "ignores the trend of exchange rate movement and the far-reaching legally binding rebalancing measures to be implemented in the medium term".

Chalk, however, said that a stronger yuan is necessary for reform and growth. "We do believe that China's currency needs to be stronger," Chalk said.

Reform of the yuan exchange rate is part of a "package of reforms", Chalk said, that will make China's financial sector more market-oriented and better integrated into the global financial system.

Currency appreciation is important in efforts to rebalance the economy, Chalk said.

But he also noted that China's financial reform is a "risky undertaking" and "needs to be managed carefully".

Chen Jia in Beijing contributed to this story.

China Daily

China Currency Rates Continue to Drive Up Import Prices in US

From the ChinaDaily

BEIJING -- The renminbi (RMB), China's official currency, set a new high for the second day to a ratio of 6.4536 yuan per US dollar on Thursday.

It indicates a 22-percent increase after the country launched exchange reforms on July 21, 2005. The ratio was 8.11 yuan per US dollar when the reforms were launched six years ago.

The RMB, or yuan, has appreciated in an unilateral way and anticipation on this is attracting more capital inflow, burdening domestic liquidity management, said Chen Bingcai, a researcher with the National School of Administration.

The yuan's unilateral appreciation has brought challenges such as global payment imbalances, soaring foreign exchange reserves, inflows of speculative "hot money" and high trade costs for exporters.

Troubles brought by the unilateral appreciation are more serious than those caused by pegging the yuan to the US dollar, said Lu Zhengwei, a senior economist with the Industrial Bank.

The yuan's real effective exchange rate (REER) went up 14 percent in the past six years, far below the yuan's appreciation against US dollar, according to the Bank for International Settlements (BIS).

The yuan's REER currently stands at 116.31, up from 101.42 when China launched the exchange reforms six years ago, according to the BIS. Meanwhile, the ratio of yuan against the US dollar rose 2.45 percent this year, but the yuan's REER actually depreciated 3.02 percent.

The REER index of the yuan is used to measure the yuan's external competitiveness vis-a-vis the currencies of the country's major trading partners and competitor exporter countries.

A hike in the REER index would mean the currency is appreciating on a real, trade-weighted basis, suggesting a loss in external price competitiveness.

China faces risks from inflation and a possible boom and bust in real estate prices and should allow its currency to rise to promote economic stability, the International Monetary Fund said in an annual review on Wednesday.

It said a stronger yuan is "a key ingredient to accelerate the transformation of China's economic growth model."

China abandoned a decade-old peg to the US dollar by allowing its currency to fluctuate against a basket of currencies on July 21, 2005.

The reforms were suspended in a bid to fight the global downturn in 2008. The yuan exchange rate again was pegged to the dollar at a ratio around 6.83 from September 2008.

The peg was lifted on June 19, 2010, when the central bank announced further yuan exchange rate formation mechanisms.

In China's foreign exchange spot market, the yuan is allowed to rise or fall by 0.5 percent from the central parity rate each trading day.

The central parity rate of the yuan against the US dollar is based on a weighted average of prices before the opening of the market each business day.

TDD Audits Note Troubles

 

The article below is from the Columbia Daily Tribune on Wednesday, March 30, 2011.  While it’s a few months old, it does a good job highlighting issues with TDD’s around the state.  The key item I focused on – competitive bidding.  After all, this is public tax money.  Competitive bidding assures that taxpayers are getting the most for their money.  The problem as I see it is that these TDD’s are run by people not familiar with the requirements of political subdivisions spending public money.

Don’t get me wrong, I’m not against TDD’s, but they must learn the rules and follow them.

 

Auditor notes TDD troubles

Schweich cites overspending.

By Jacob Barker

Wednesday, March 30, 2011

Missouri Auditor Tom Schweich released his annual review of the state’s Transportation Development Districts yesterday, again noting problems with competitive bidding, budgeting and reporting finances to the state.

Each statewide audit of the districts since the first one was conducted in 2006 has been critical of the quasi-public entities. The districts, known as TDDs, are established via a petition in the courts and impose a tax on retail sales in their boundaries to pay for road and site improvements. Almost all the districts are formed by the property owner or developer of a commercial venture and are governed by a public board, though members usually are appointed by the owner or developer.

Supporters say the districts finance projects that would not otherwise be built. For instance, the Stadium widening project is financed in part by three TDDs.

Columbia has 14 TDDs that charge a half-percent sales tax at nearly every large shopping center in the city, including the Columbia Mall, all three Walmarts and the Bass Pro Shops.

The report issued by Schweich surveyed 16 selected TDDs, including the Gans Road and Highway 63 TDD in Columbia, and noted many of the same problems as his predecessors. Statewide, there were 154 TDDs established as of December 2008. Through their lifespans, which can be as long as 40 years, they had total estimated project costs of $1.5 billion and total estimated revenues of $1.8 billion, according to the audit.

The report noted many of the audited districts’ budgets contained math errors, overspent or weren’t properly documented. In some cases, the report noted the auditor’s office was not aware when a new TDD was formed, highlighting the difficulty of overseeing public money in the hands of private developers.

Missouri law requires the state auditor to review each TDD once every three years and for each TDD with financial activity to submit a financial report to the state auditor. But 21 TDDs did not file a report with the auditor on time in 2007 or 2008, including two Columbia districts. The Northwoods TDD at Smiley Lane and Range Line Street did not file a report in 2008. The CenterState TDD, on property owned by Columbia Bass Properties, did not file a financial report in 2007 or 2008. Representatives of the districts could not be reached by deadline.

The audit noted the Gans and 63 TDD “overspent its 2008 and 2007 budgets by approximately $59,000 and $4.2 million, respectively.” The report also said a formal budget resolution was not approved authorizing the expenditures.

The Gans and 63 TDD was formed in 2006, and the land it covers was later acquired by Bristol Development Group, an entity owned by now-deceased Columbia developer Jose Lindner and his son, Jay Lindner. The Lindners had plans for a mixed-use development at the site and helped finance the Gans Road interchange built in 2008, planning to get repaid with TDD revenues.

The TDD had $4.2 million in debt obligations to Bristol Development, but the Lindners lost that property in foreclosure in August. Those notes were used as collateral in a financing agreement with Sapp-Bristol Management Group, led by Elvin Sapp, according to a legal notice. That company bought some of the land at Gans and 63 at the foreclosure sale in August and now holds the TDD notes.

But because nothing was ever developed at the site, there is no revenue to pay off the notes. Sapp’s attorney, Bruce Beckett, said the company is working toward settling those obligations. A legal notice said they are to be sold at auction April 11.

Attorney Craig Van Matre, who works with many of the city’s TDDs, said he is working to dissolve the Gans and 63 TDD. He said once the district’s debts are resolved the district should be able to dissolve.

In January, Columbia’s 14th TDD was formed on land owned by Red Oak Investment Co. across from Grindstone Plaza, according to court filings. There is no development there now, though last summer the company won approval from the Columbia City Council to rezone the land to commercial.

Another Chinese Translation That Fell Short

This was in a factory I visited today.

July Tax Numbers Strong

This month's 1% sales tax receipts from the state showed a strong gain compared to the same time last year. Revenues were up 12.2% in July.

YTD, sales tax revenues are up 2% over last year.