Davidson CIP answers coming in...decision should be delayed until data is complete.

Here are some answers to yesterday's questions.  Thanks to the Town Staff for responding quickly.  The below is compiled from direct answers from the Town as well as other bits of information available. 



1. How much debt is Davidson willing to owe Mooresville as part of this spending plan? What is the expected debt for the current fiscal year and is this based on the new 30% ownership level?

Staff has discussed with the town board owing Mooresville no more money than we have on hand when the first possible call (sale of MI) could occur in 2017.  The first opportunity to sell MiC (even at a significant loss) does not occur for 5 more years because of the prepayment penalty on the bonds used to fund the project.  One can surmise that the largest number the Board is willing to accept at this point is $2mm in debt because that's the size of the special account set up to hold this money.

I've received multiple numbers from the Town for the amount owed this year to Mooresville, but based on the new 30% ownership agreement which is retroactive to 2007 and the $2.087mm in the original budget, the Town could be in the neighborhood of owing $1.79mm for MiC this year - paying the $1mm under the new agreement's annual cap and owing Mooresville $790k.  Davidson is setting aside $300k to pay Mooresville this year.  The Town also apparently has a credit with Mooresville of $400k based on the retro active component of the new agreement.  Basically, the Town overpaid in the early subsidies because those were calculated at the current ownership at the time under the old agreement.  Since the new agreement is retroactive back to the purchase date the Town will get some money back either at sale of MiC or as the debt is paid off.

All of this is good news for the first year.  If Davidson owes Mooresville $790k, but has set aside $300k plus the $400k credit, then they have almost covered the first year.  Not perfect, but it should at least pass the smell test.  If the MiC results reported last week are sustainable through the year, then the subsidy this year might actually be less than estimated bringing the numbers completely in line.  Again, this only covers the first year.  Without more data, projections into year 2 of the CIP and beyond are not really knowable at this point.

Waiting to make this decision on the CIP would allow time to close this information gap.

2. What are the growth projections and timelines provided and supported by Mi-Connection management which will result in lower annual subsidies from Davidson? Based on the MiC presentation last week, these should be available.

From the Town..."MI has stated they will not provide projections until they have reliable data to build the projection on. The transition and David Auger’s term as CEO are less than a year old. When we have a year under our belt we should look for a projection."

To me this seems to be a reasonable expectation.  MiC has missed nearly every prediction ever made.  They need to get the next one right, and they should wait until they have the data.  However, I would call on the Town of Davidson to exercise the same level of caution.  They should not move forward on the CIP until MiC provides its projections.  The reason for this is simple.  The CIP plan is only being discussed based on the new agreement and the assumption that MiC will get better rather quickly from here.  If that's proven to not be the case and the Town has already gone forward with major spending plans, then the Town could be in a further bind and have misprioritized spending based on faulty assumptions.

David Auger was named CEO 11 months ago.  That being the case, the Town should wait until at least April of 2013 when the 3rd quarter MiC results are available.  Making the CIP part of next year's budget discussions in May and June would be even better. 

3. Based on the combined proposed spending and the debt payoff to Mooresville, when can Davidson citizens possibly expect to see any lowering of tax rates and/or fees which have been kept artificially high due to the years of Mi-Connection subsidies? If the answer is “never” or “we don’t know”, that’s fine. However, the public has expected all along that some relief would be coming when the subsidies were lowered.

Answer: The Town does not know and will not know until the projections are complete.

Again, another reason to not approve a CIP until next year when the MiC projections are known.  Remember, a delay in this decision would only be a few more months - not long at all to wait. 

Of course, the likelihood of this decision being delayed is slim - if for no other reason than next year is an election year for the Town of Davidson.  It seems more likely Davidson will follow the pattern of other government bodies by making major spending decisions with their attendant tax consequences in a non-election year when the ballot box is not as immediate.


More to come on other answers soon...